A dividend is a portion of a company's profit paid out to its shareholders in cash. If you hold the shares on the record date, the money is credited directly to the bank account linked to your demat account. You don't have to claim it or do anything in the app.
Where does a dividend come from?
When a company earns a profit, it can either keep the money to grow the business or hand some of it back to shareholders. The part it hands back is the dividend, declared as a fixed amount per share. If Bharat Paints Ltd declares a dividend of ₹6 per share and Anjali holds 200 shares on the record date, she receives ₹1,200.
There are three common kinds:
- Interim dividend, declared partway through the financial year, out of profits earned so far.
- Final dividend. Declared after the year ends, and approved by shareholders at the annual general meeting (AGM).
- Special dividend, a one-off payout, often after an unusual gain such as selling a business unit. It isn't expected to repeat.
A company is never obliged to pay a dividend. Many fast-growing companies pay little or nothing because they reinvest everything, and that by itself is neither good nor bad.
Who is eligible for a dividend?
Eligibility depends entirely on the dates the company announces. You must be holding the shares on the record date, which in practice means you must have bought them before the ex-date. The timing trips up many beginners, so it's worth reading what is the difference between record date and ex-date. Buying on or after the ex-date means the seller, not you, gets that dividend.
How does the money actually reach me?
Not through your broker. The company's registrar and transfer agent (RTA) takes the list of eligible shareholders from the depositories as of the record date, and pays each one directly, typically by electronic transfer into the bank account linked to your demat account. The credit usually arrives within a few weeks of the record date; final dividends can take a little longer because they wait for AGM approval.
Because the dividend goes to your bank and not your trading balance, it won't appear in your Rupeezy funds. For what this looks like in practice (and what to check if a credit seems missing) see will I receive dividends, and where are they credited.
One tax point to be aware of: dividends are taxable in your hands as income, and companies may deduct tax at source (TDS) before paying, once your dividend from that company crosses a threshold in a financial year. The deducted amount shows up in your Form 26AS and can be adjusted when you file your return.
Does the share price change because of a dividend?
Yes, mechanically. On the ex-date, the share price typically opens lower by roughly the dividend amount, because new buyers from that day are no longer entitled to the payout. Vikram holding shares through the ex-date hasn't lost anything. The dip in price is offset by the cash coming to his bank. If you want to compare dividends across companies, what is dividend yield shows the standard way to do it.
Things to keep in mind
- Keep your bank details up to date with your depository. Dividend credits go to the bank account linked to your demat, and stale details delay the payout.
- Dividends are decided by the company each time. A stock that paid generously last year may pay nothing this year.
- The ex-date price adjustment means a dividend is not "free money" on top of an unchanged price. Your total value stays roughly the same on that day.
- Dividend income is taxable, and TDS may already have been deducted. Check before you count the full amount.
Read next
What is dividend yield? — What that dividend is worth relative to the price you paid.