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Dividend and its impact on the share price.






The price of the share is affected by numerous factors. Among them, one of the most significant factors is the various corporate action.


Corporate actions are the various activities generally undertaken by a company through an event like board meetings, general meetings, and announcements. On these events, the detail financials of the company are presented and discussed. It’s a great opportunity for an investor willing to earn a good ROI (Return of income).



An investor if efficiently use that financial information would be able to get a bird’s eye view of the company’s operations, its stability, growth and the future prospects and further scope of growth.
Today we are going to have a look at one of the most significant corporate actions i.e. dividend declaration.


Dividends are generally paid by the company to its equity shareholders. Dividends are nothing but it’s a way company distributes its profit to its shareholders. However, it is not mandatory for a company to pay dividends at regular intervals (generally dividends are paid annually). If the company is at its growth stage, then such profits instead of distributing as dividends, the company may reinvest it on it on its existing business or new projects.


Also, even if the company is facing loss, it can pay a certain percentage as a dividend by utilizing its reserve and surplus accumulated over the years of company’s operations.


The dividends are announced at the AGM (Annual General Meeting) of the company. It is approved by the shareholders through the resolution. The payment of dividend undergoes various cycle:

Fig.1: Dividend Cycle






The board of directors proposes the rate of dividend at the board meeting. The company declared the dividend (proposed by the board) at AGM through the approval of the shareholders. It is called dividend declaration date.


After the declaration takes place the company goes through its shareholder's record in order to list out the eligible shareholder for the payment of dividend.  It's called record date.
Ex-date is few days before the record date.  It is also known as an ex-dividend date. Only the shareholders who hold the share before the ex-date will be eligible for the payment of the dividend.
Dividend payout date is the date when the company pays out the dividend to its registered shareholders.


Impact of dividend on the share price.

After the ex-date or ex-dividend date, the shares of the company drops down. The price generally drops down by the amount of dividend the company had declared. Suppose the share price of XYZ Ltd on the stock exchange, before the ex-date is $500 and the company has announced the dividend at $10/share. Then after the record date the price of XYZ Ltd. Share will drop down to $490.


The company can either pay an interim dividend or final dividend. If the dividend is paid by the company at any time during the financial year then it is known as an interim dividend.

Likewise, if the dividend is paid after the end of the financial year, it is called the final dividend.



Also read Dividend Payout Ratio Interpretation.

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