6 must know facts on dividend paying companies in India
There are several important facts that one must know about dividend and dividend paying companies in India. Here are 6 interesting facts that will make your decision easier while buying into shares of companies and while investing for dividends.
Dividends in the hands of the investor is tax free. This means unlike other instruments like fixed deposits, where the interest income is taxable, dividend income is not so. Of course, companies in India that declare dividends have to a pay dividend distribution tax. Dividend yield in simplistic terms is nothing but the amount of dividend received with respect to the current market price of the stock. Let's say a stock is currently traded at Rs 100 and you buy 100 shares of the company. The cost of buying these 100 shares is 100x100=Rs 10,000. Now, if the company decalres a dividend of Re 1 per share, you get a dividend of Rs 100 on your investment of Rs 10,000. So, the dividend yield works out to 1 per cent. Higher the dividend yield the better it is for the investor. On the exchanges, there is an ex-dividend date. This means, if you do not own the share before the ex-dividend date, you would not get dividend for your shares. The book closing is a particular day fixed by a company during which an investor must be registered as an owner of the shares. It is only then that he will be eligible for the dividend. The book closure generally happens 2-3 days after the shares go ex-dividend on the exchange. This is the day when the dividend warrants or other forms of crediting dividend to the shareholder happens. This is the ratio of dividend distributed as a per centage to profits. If a company makes a profit of Rs 1000 and pays a total dividend of Rs 100 to all its shareholders, the dividend payout ratio is 10%. That is profits divided by amount of dividend paid to all shareholders. If the dividend payout ratio is high, it shows a company is more investor friendly. Only companies pay dividend distribution tax
An important criteria
Important date to note before buying shares
Very important for the investor to note
Date on which payment of dividend is made
Another key datapoint to watch