Meaning of Dividend

What Is Dividend Yield In Share Market | Meaning of Dividend

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Dividend and dividend yield in debt let's get started investors who invest their money in any firm become its shareholders with the passage of time as the firm grows making profit it often decides to share a portion of this earned profit with its shareholders the portion shared with the investors is termed as a dividend the firms are not obliged to pay any dividend to their shareholder most of the smaller firms prefer to reinvest their profit towards company expansion and growth also there is no guarantee of regularity in giving dividend to the shareholders if we talk about taxation under dividend then earlier there was no imposition of tax if any company provided dividend up to 10 lakh rupees a 10 tax was levied on the dividend of more than 10 lakh rupees but this rule was revamped in the budget of 2020. as per the proposal made in this year's budget by the finance ministry the individuals receiving a dividend will now be fully taxed this implies that they have to pay income tax at the applicable rates irrespective of the dividend amount every share possesses two types of value face and market value the current price of any share in the stock market is termed as its market value there is a regular fluctuation in this market value due to a change in supply and demand all the companies have a nominal value called the face value this face value gets decided by the company when it issues its shares to the investors and the face is free from the movement or change in the supply and demand the face value changes in certain special situations like stock split and consolidation remember this there is absolutely no connection between the face value and market value of the share face value comes to use in case of dividend and in accounting as well the dividend distributed by a firm to its shareholders is given at the face value for better understanding consider a company named abc the price of one share of abc is 1000 rupees whereas the face value is 10 rupees now if the firm decided to declare a dividend of say 300 percent then this simply implies that abc will be giving a dividend of 300 on its face value thus here the dividend will be 300 percent of the 10 rupees which will be equal to 30 rupees this means every shareholder of abc firm would receive a dividend worth 30 rupees on one share our next topic of discussion is the dividend yield it tells the amount of dividend yield a company gives as compared to the market value of its shares consider two hypothetical firms abc and xyz both of the firms have given dividends worth 20 rupees to each of their shareholders in this example you cannot tell which company gave better and more dividend as compared to the market value of its shares

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This is where the role of dividend yield comes into play now considering the share price of abc is 1000 rupees whereas the share price of xyz is 2000 rupees then on calculating the dividend yield of these two firms we can easily compare the dividend yield of these two firms the formula of dividend yield is dividend per share divided by market price per share thus in the case of abc the dividend yield will be 20 divided by 1000 and multiplied by 100 is equal to 2 percent whereas the dividend yield of xyz is 20 divided by 2000 and multiplied by 100 is equal to 1 by comparing the dividend yield of these firms we conclude that the dividend yield provided by firm abc to its shareholders is more as compared to the dividend yield provided to the shareholders of xyz there are instances where due to a decline in the share price the dividend yield comes out to be more continuing with the example of company abc let us say the price of the share drops to 500 from 1000 rupees and the firm declares a dividend worth 20 rupees per share then on the calculation the dividend yield of the company abc will be four percent this figure is double than the dividend yield of abc in the previous case here the dividend provided by the company is the same yet due to a decline in the share price the dividend yield has increased so keep this point in mind while analyzing the dividend yield of any company that its dividend yield is more due to high dividend or due to a decline in the share price there are several firms who never provide dividends like warren buffett owned berkshire hathaway mr warren buffett does not believe in giving dividends according to him the profit must be reinvested for company expansion emulation of its products or services and acquisition of good companies this can help the companies to stay ahead of their peers and increase their market value as well and finally through capital appreciation investors get benefited by it here the term capital appreciation means increment in your investment value which increases the share price