You people will wonder to know that, the term "dividend" comes fromthe arithmetic operation of division: a/b=c then a is the dividend, bis the divisor, and c the quotient.
Confused, aah yes!
Now let's set out the literal meaning of dividend in relation toequity market, "money for nothing" (great) everyone wish for the same.Wait!!! Dividend is not for everyone, but to those shareholders whoowes certain portion of shares in the company.
Dividend is the distribution of earnings from the company to itsshareholders for the percentage of money they have invested. It isreward from companies with jolly heart saying"Thank you guys forinvesting with me".
For example, if your uncle paddy owns 100 shares worth market priceRs. 500 each, he has Rs. 50000 worth of value in the stock. Companydecided to thank your uncle with certain cash rewards and provided 20percent cash dividends. Wow, its great 20% of Rs. 50000, equals to Rs.10000. Just a minute, 20% not of Rs. 50000 but 20 percent of facevalue from every stock.
That meant, every companies issued their shares to investors atcertain face value, such as Rs. 10, Rs. 100 (Most of the Nepalese companies have face value of Rs. 100). Now if the face value is Rs.100 of the scrip uncle paddy owes, he will receive Rs. 2000 (20percent of 100*100).
Dividends are in two forms: cash dividend and stock dividend. Behappy, if you are the shareholders of the dividend distributingcompany, you get it without any payment burden in your head. Dividendsseem great for shareholders, but are dividends good for company?Since, companies can use the earnings for re-investing and step theirhands ahead of competitors rather than giving dividends toshareholders. But, on the other side of the fence, there areshareholders who simply get interested in getting "free money" fromthe company for holding shares in hands even for long periods of time.Therefore, companies decided to attract general shareholders asking toinvest in their companies' shares because they endow with attractivedividends. It's just the better way to make shareholders cheerful andretain them with valuable optimism.
Cash dividends refer, giving shareholders the cash amount increasingtheir pocket size or adding their bank balance. Such dividends are aform of investment income and are usually taxable to the recipients inthe year they are paid. This is the most common method of sharingcorporate profits with shareholders of the company. At present,Citizens bank International decided to give 10% cash dividends; Nabilproposed 35 % cash dividends, Standard chartered 50%, Nepal InvestmentBank 20% and Unilever declared 450 percent cash dividends from theprofit fiscal year 2065/66.
However, stock dividends is the dividend given to shareholders thenumber of shares vis-à-vis to the shares they owned. Let's say, unclepaddy has 100 shares and company decided to provide 50 % stockdividend then your uncle will be entitled with 50 extra shares, now heholds total of 150 shares. Isn't that great? the portfolio surgedwithout any further investment. Currently at Nepalese market StandardChartered, Nabil bank both decided to provide 50 percent stockdividend from the profit of fiscal year 2065/66.
These sounds cool and interesting, however the dates of dividendshave implication to shareholders. Who will receive dividends decidesthe date of dividends:
Very first, dividends must be approved by a company's BOD every timethey are paid on consent of regularity body (NRB in case of FIs).There are basically four important dates to remember regardingdividends.
Declaration date: The BOD meeting propose to provide dividends toshareholders but need to be further approved by NRB and company'sAnnual General Meeting.
In-Dividend date: It is the last day before the book closing timeexpires. It meant, if uncle Pady bought on the day, company is liableto pay him dividends they declared. After this date the stock becomes ex dividends.
Ex-Dividend date: The day after the book closure, where all sharesbought and sold no longer come attached with the right to be paid themost recently declared dividends. It is relatively common for astock's price to decrease on the ex-dividends date by an amountroughly equal to the dividend paid.
Payment date: The day when the dividends is exactly paid toshareholders. The payment is adjusted in the balance sheet of thecompany.
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