Money Basics · Stocks & demat

Dividends

Dividends are cash payments companies make to shareholders from their profits. You own shares, company earns profit, company shares some of it with you. Directly to your bank account.

How dividends work

1. Board of directors declares a dividend: "₹5 per share"

2. Record date is set. The shares must ALREADY be in your demat by the end of this day

3. Ex-date: under T+1 settlement it falls on the SAME day as the record date. Buy on that day or later and you miss the dividend. The last day to buy is the trading day before

4. Payment date: money hits your registered bank account

> The stock price typically drops by approximately the dividend amount on the ex-date. A ₹5 dividend on a ₹200 stock → stock opens around ₹195. Total wealth stays the same: you have ₹5 cash + ₹195 share.

Dividend yield

Annual dividend per share ÷ share price × 100.

A mature PSU energy business might pay ~₹8–10/share annually on a ~₹250 share. Yield = ~3.2–4%.

High yield sounds good, but check if it's sustainable. A company paying dividends from debt or eroding capital is a trap.

PSU energy and miningtypically among the higher-yielding listed segments

PSU companiestypically higher dividend yield than private sector growth stocks

Tax on dividends

Dividends are taxed at your income slab rate. A rule in force since the 2020 Budget, and tax rules move every Budget, so check the current year. A 30% bracket investor pays 30% tax on every rupee of dividend. TDS at 10% is deducted by the company if dividends from that company exceed ₹10,000 in a financial year, raised from ₹5,000 by the Finance Act 2025 with effect from FY2025-26. TDS is a prepayment credited against your slab bill, not a tax on top of it.

Dividends vs growth stocks

High-growth companies typically pay no dividends, they reinvest all profits for expansion. Mature consumer and commodity businesses pay regular dividends. Neither is objectively better, your goal determines which you prefer.

Takeaway. Dividends are cash paid from company profits to shareholders. Buy before the ex-date to receive them. Dividends are now taxed at your slab rate.