A portion of a company's earnings distributed to shareholders as a return on their investment, typically paid quarterly or annually.
Dividends represent the share of profits a company distributes to its shareholders. The board of directors decides the dividend amount based on profitability, cash availability, and growth plans. Types include cash dividends (most common), stock dividends (additional shares), and special dividends (one-time payments). In India, dividends are taxable in the hands of shareholders at their applicable income tax slab rate (since the abolition of Dividend Distribution Tax in 2020). Companies are not obligated to pay dividends and may retain earnings for reinvestment.
A company with 10,00,000 outstanding shares earns ₹5,00,00,000 in profit and declares a ₹20 per share dividend. Total dividend payout = ₹2,00,00,000. Payout ratio = 40%. The remaining 60% is retained for growth.
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
Yes. Since April 2020, dividends are taxable in the hands of shareholders at their applicable income tax slab rate. TDS of 10% is deducted if dividend exceeds ₹5,000 in a financial year. Companies no longer pay DDT (Dividend Distribution Tax).
The percentage of net income distributed as dividends. Payout Ratio = Dividends ÷ Net Income. A 40% payout means the company distributes 40% of profits and retains 60%. Young growth companies often pay 0% (reinvesting all profits).
The cumulative net profits of a company that have been kept in the business rather than distributed as dividends to shareholders.
The residual interest in the assets of a business after deducting all its liabilities. Also called owner's equity, net worth, or shareholders' equity.
A financial metric that measures the profitability of an investment by comparing the net profit to the cost of the investment, expressed as a percentage.
A financial statement that summarizes a company's revenues, costs, and expenses over a specific period to show net profit or loss.
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