Dividend is the money which is payable to the shareholders of a company. This means that the company distributes money to the shareholders depending upon the number of shares they hold. There are many interesting things to know about dividend.
o Dividend is an income for the shareholder.
o Dividend is not a fixed income. It is variable.
o Not all companies pay dividend.
o It is not mandatory for a company to pay dividend.
o The investor has to invest a lot in shares to get good dividend.
o The dividend yield is variable.
o The income from dividend is taxable.
Let us go through each of these points.
Why Dividend is an Income?
When we invest money in something, we get returns in the form of either a lump-sum amount or a periodic payment. Now, whenever, we get periodic payment, i.e., receive money at a certain duration, it is considered an income. Income, by definition, is something we get periodically. This usually is a regular payout. However, even if it isn't frequently disbursed, it is an income because, the money is being earned.
Why Dividend is not a fixed income?
Dividend is paid to the shareholders by the company when the company makes profit. Now profit is not something which is fixed because it depends upon a lot of factors like production or manufacturing costs, sales, revenue generated, expenditures incurred etc. As profit is not always certain, the payout as dividend is also uncertain. Companies may pay dividend to their shareholders regularly or they can avoid paying it. A lot depends upon the profit they make and so, for the shareholders, dividend is not a fixed income.
Why not all companies pay dividend?
This is another important thing for the shareholders. All companies won't pay dividend. There are many listed companies at the stock markets, but only some of them pay dividends to their shareholders. As dividend depends upon the overall health of the company, and also upon the policy it follows, not all companies can make it happen.
Why it is not mandatory for a company to pay dividend?
Its not compulsory for companies to pay dividend because there is no law which mandates this as a requirement. Since, all companies are not the same, how can a payout be made mandatory for all? This isn't sensible. Even if a company pays dividend, it doesn't have to do it compulsorily.
Why investors have to invest a lot in shares to get good dividend?
Dividend is a small amount of money per share. This means that to get reasonable money as dividend, the shareholder should possess lots of shares. As shares are costly, not all shareholders may have them in abundance. With few shares, a shareholder cannot expect any meaningful returns from dividend.
Why the dividend yield is variable?
Dividend yield depends upon two main things:
Since, share price and the amount of dividend aren't constant, the yield is liable to change as well. This is why the dividend yield is variable.
Why the income from dividend is taxable?
As stated above, dividend is an income. The government can tax income from dividend if it is above their prescribed limit. So, if a person receives good amount from dividend, then he has to pay tax for it.
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