Ever wondered how a tiny piece of a company can bring you regular cash just for owning it? That's the magic of shares and dividends.
💡 In Simple Words: When you buy a share, you own a small slice of a company. If the company makes profit, it may share some of that profit with you – that’s called a dividend.
What is a Share?
A share (also called a stock) is a unit of ownership in a business. Think of a pizza cut into many slices; each slice is a share. If you have one slice, you own that part of the pizza.
- Face value – the original price printed on the share certificate, like the “list price” of a product.
- Market value – the price at which the share actually trades on the stock market, similar to the price you see on a grocery shelf.
Understanding Dividends
A dividend is the portion of a company's profit that is handed out to shareholders. Companies don’t have to pay dividends; they decide each year based on how much profit they made and how much they want to keep for growth.
Dividends can be paid in cash (most common) or in extra shares (called a scrip dividend). For ICSE exams, you’ll mostly meet cash dividends.
How to Calculate Dividend per Share
The basic steps are:
- Find the company’s total profit that is earmarked for dividends.
- Decide the dividend rate – the percentage of profit to be shared.
- Compute the Total Dividend = Profit × Dividend Rate.
- Divide the Total Dividend by the number of shares issued.
That final result is the Dividend per Share (DPS) – the amount each share earns.
Worked Example
Imagine a company called “Sunrise Ltd.” has a total profit of ₹500,000. The board decides to give 40% of the profit as dividend. The company has issued 25,000 shares.
Step‑by‑step:
- Total dividend = ₹500,000 × 40% = ₹200,000.
- Dividend per share = ₹200,000 ÷ 25,000 = ₹8 per share.
So every shareholder receives ₹8 for each share they own.
Another Example – Using Market Value
Sometimes questions give the market price of a share and ask for the Dividend Yield. Dividend Yield tells you how much cash you earn for each rupee you invest.
Formula: Dividend Yield = (Dividend per Share ÷ Market Value) × 100%
Example: If a share’s market value is ₹120 and the dividend per share is ₹6, then
- Yield = (6 ÷ 120) × 100% = 5%.
Key Formulas at a Glance
| Term | Formula | What it Means |
|---|---|---|
| Dividend per Share (DPS) | Total Dividend ÷ Number of Shares | Cash each share receives |
| Total Dividend | Profit × Dividend Rate | Whole amount the company pays out |
| Dividend Yield | (DPS ÷ Market Value) × 100% | Return on your investment expressed as a % |
Quick Comparison: Shares vs. Dividends
- Shares are ownership; dividends are profit sharing.
- You can earn money from shares in two ways: price appreciation (selling at higher price) and dividends.
- Dividends are only paid if the company decides to distribute profit.
📝 Likely Exam Questions
- Question: A company has a profit of ₹800,000 and declares a 30% dividend. It has issued 40,000 shares. Find the dividend per share.
- Answer: Total dividend = 800,000 × 30% = ₹240,000. DPS = 240,000 ÷ 40,000 = ₹6.
- Question: The market price of a share is ₹150 and the dividend per share is ₹9. Calculate the dividend yield.
- Answer: Yield = (9 ÷ 150) × 100% = 6%.
- Question: If a shareholder owns 120 shares of a company that pays a dividend of ₹5 per share, how much total dividend will he receive?
- Answer: Total dividend = 120 × 5 = ₹600.
- Question: Explain why a company might choose not to pay any dividend even if it makes profit.
- Answer: The company may retain earnings to fund expansion, pay off debt, or invest in new projects, which could increase share value in the long run.