What is a Dividend?

A dividend is a payment made by a corporation to its shareholders, usually in the form of cash or additional shares of stock. When you own shares of a dividend-paying company, you receive a portion of the company's profits based on how many shares you own.

Think of it this way: if a company earns ₹100 crore in profit and decides to distribute 30% of that to shareholders, each shareholder receives their proportional cut. A shareholder with 0.1% of the company gets 0.1% of the ₹30 crore dividend pool.

Not all companies pay dividends, and that's by design. Companies typically pass dividends when they:

• Have stable, mature businesses generating consistent profits
• Don't need all earnings for growth or reinvestment
• Want to reward loyal shareholders and attract new investors
• Signal financial strength and confidence in future stability

Growth companies (like tech startups) typically don't pay dividends because they reinvest profits back into expanding the business. Mature companies like banks, utilities, and consumer staples pay dividends because they've already built their core business.

Cash Dividends: The most common type. You receive actual money deposited to your brokerage account or bank account. If a stock pays a dividend of ₹5 per share and you own 100 shares, you'll receive ₹500 in cash.

Stock Dividends: Instead of cash, the company gives you additional shares. For example, a 5% stock dividend means you receive 5 new shares for every 100 you own. Your ownership stake increases but doesn't dilute proportionally.

Special Dividends: One-time payments made when a company has excess cash, due to asset sales, or other special circumstances. These are unpredictable but can be substantial.

Dividend Yield is a percentage showing the annual dividend as a proportion of the stock price. It's calculated as:

Example: If a stock trades at ₹1,000 and pays ₹50 in annual dividends, the yield is 5%. A yield of 3-6% is generally considered healthy for dividend stocks.

There are two ways to make money from stocks:

1. Open a brokerage account: Use platforms like Zerodha, Upstox, or Angel Holdings to open a trading account and demat account.

2. Research dividend stocks: Look for companies with consistent dividend history, reasonable yields (3-6%), and strong payout ratios. Check financial websites for screening tools.

3. Start small: Buy a few shares of dividend stocks. You don't need large capital to start— even ₹10,000 can begin your dividend journey.

4. Enable DRIP: Many brokers offer Dividend Reinvestment Plans where your dividends automatically buy more shares. This creates powerful compounding.

5. Monitor quarterly results: Watch company earnings and understand if dividends are sustainable. A stock with 8% yield might be a red flag if earnings are declining.

• Dividends are regular payments from companies to shareholders
• They signal financial strength and are typically paid by mature companies
• Dividend yield is the annual dividend divided by stock price
• You can earn from both dividends (income) and stock price growth (capital gains)
• Reinvesting dividends through DRIP creates powerful compounding over 10-20+ years