Demystifying Dividends : Generate regular income from stock market

The stock market is a dynamic financial realm that offers various opportunities for investors to generate wealth. One corporate actions that is important for investors to understand are dividends.

▪ Dividends refer to the distribution of profits by a company to its shareholders. When a company generates a surplus, it may choose to distribute a portion of those earnings among its shareholders as dividends. Dividends are typically paid out in cash, such as Rs. 5 per share. They serve as a reward for shareholders who invest their money in the company and share in its success.

▪ Dividends are usually announced periodically, such as quarterly or annually, although they are not mandatory for the company, and it may not award any dividends if it doesn't wish to. Dividend-paying stocks are popular among investors as they provide a regular income stream.

▪ Eligibility for dividends is determined by a record date. A record date is a specific date set by a company, and the shareholder will only receive dividends on the number of shares that are recorded in their demat account on that particular date.

Key ratios when analyzing a company based on dividends:

▪ Payout ratio: The payout ratio indicates the percentage of a company's earnings distributed as dividends to its shareholders. The formula used is dividends per share divided by earnings per share (EPS). It helps investors assess the sustainability of dividend payments and can provide insights into a company's profitability and financial health.

▪ Dividend yield: Dividend yield measures the annual dividend income received per share relative to the stock's price. It is calculated by dividing the annual dividend per share by the stock's current market price. A higher dividend yield indicates a higher return on investment from dividends.

In conclusion, dividends play a crucial role in investing, providing a means for shareholders to earn income from their investments. Understanding concepts like payout ratio, dividend yield, and record date is essential for investors to make informed decisions as for which stocks to include in their portfolio.