Dividends are among the most common corporate actions undertaken by companies listed on NSE and BSE. They represent a portion of a company’s profits distributed to its shareholders. But there's more to dividends than just receiving money in your bank account.
Types of Dividends
- Interim Dividend: Declared and paid before the finalization of financial results.
- Final Dividend: Declared after the year-end results and approved in the AGM.
- Special Dividend: One-time dividend usually on account of extraordinary profits.
Examples from NSE & BSE
Infosys Ltd (NSE: INFY) declared a final dividend of ₹20 per share in May 2024, rewarding shareholders with stable cash returns.
Hindustan Zinc Ltd (BSE: 500188) issued a special dividend of ₹26 per share in January 2024, on the back of surplus cash flows.
Dividend Timeline: When Do You Get Paid?
Once a dividend is declared, the company sets a record date to determine eligible shareholders. The dividend is typically credited to the shareholder’s bank account within 7–15 working days from the record date, depending on the registrar and clearing processes.
Understanding Cum-Dividend and Ex-Dividend
Cum-Dividend: If you purchase a stock before the ex-dividend date, you are eligible to receive the dividend. This is called buying the stock cum-dividend.
Ex-Dividend: The stock trades ex-dividend one business day before the record date. Buying on or after the ex-date means you're not eligible for the dividend. On the ex-date, the share price usually drops by the dividend amount.
If a company announces ₹10 dividend with a record date of 10th July, the ex-dividend date would be 9th July. Buying before 9th ensures you receive the dividend.
Taxation of Dividends
As per current Income Tax rules, dividends are taxable in the hands of the investor at the applicable slab rate. Companies are required to deduct 10% TDS on dividends exceeding ₹5,000 per financial year per investor (₹50,000 for senior citizens).
Income Tax Rate: The dividend income is added to your total income and taxed as per your income slab—ranging from 5% to 30% (plus applicable cess and surcharge).
Impact on Futures and Options (F&O)
Dividends can significantly impact derivatives trading:
- Futures: Price of the stock futures generally adjusts downward on the ex-dividend date. However, there's no separate cash adjustment.
- Options: Intrinsic value of options can shift depending on the magnitude of the dividend. For large dividends (called Extraordinary Dividends), strike prices of options may be adjusted by the exchange.
Example: If Hindustan Zinc issues ₹26 dividend, the strike prices of open options may be adjusted on the ex-date as per SEBI circular and exchange guidelines.
Why Do Companies Declare Dividends?
- Rewarding shareholders with consistent returns
- Indicating strong financial health
- Managing surplus cash efficiently
- Signaling trust and stability to investors
Cost of Acquisition Adjustment
Unlike bonus or split, dividends do not alter the cost of acquisition for income tax purposes. However, reinvestment of dividends (if done) would have a fresh acquisition cost from the reinvestment date.
Stay updated on all corporate actions with ProStocks and make informed investment decisions. If you're an active trader in F&O or an investor in NIFTY 500 companies, dividend declarations are more than just passive income—they are key to your strategy.
Disclaimer: Investments in securities market are subject to market risks. Read all related documents carefully before investing. ProStocks is a SEBI registered stock broker (INZ000048231). This blog is for informational purposes only and does not constitute investment advice.
