Why shares and dividends matter for you?
Ever wondered how a tiny piece of a company can earn you money every year? That’s the magic of shares and dividends – and it’s not as scary as it sounds.
In simple words, a share is a slice of a company’s ownership. When a company makes profit, it can share some of that profit with you – that’s called a dividend. So, you own a piece and get a slice of the profit.
What are shares?
A share (also called a stock) is a unit of ownership in a business. Imagine a pizza cut into 100 equal slices. If you own 5 slices, you own 5% of the pizza. The same idea works for a company: each share represents a tiny part of the whole.
What is a dividend?
A dividend is the money a company pays to its shareholders out of its profit. Think of it like a thank‑you gift for letting the company use your money. Companies decide how much of the profit to keep for growth and how much to give back as dividends.
How to calculate dividend per share
Most exam questions ask you to find the dividend earned on each share. The steps are:
- Find the total profit that will be distributed as dividend.
- Know the dividend rate (usually given as a percentage of the face value).
- Calculate the total dividend amount.
- Divide that total by the number of shares issued.
Worked example 1
A company has a paid‑up capital of ₹10,00,000 divided into shares of ₹10 each. The board declares a dividend of 8% on the face value. What is the dividend per share?
- Total shares = ₹10,00,000 ÷ ₹10 = 1,00,000 shares.
- Dividend per share = 8% of ₹10 = 0.08 × 10 = ₹0.80.
So each share earns ₹0.80 as dividend.
Worked example 2
XYZ Ltd. earned a profit of ₹5,00,000. It decides to distribute 40% of the profit as dividend. The company has issued 25,000 shares of ₹20 each. Find the dividend per share.
- Total dividend = 40% of ₹5,00,000 = 0.40 × 5,00,000 = ₹2,00,000.
- Dividend per share = ₹2,00,000 ÷ 25,000 = ₹8.
Each shareholder receives ₹8 for every share they own.
Types of shares you’ll meet in class
ICSE usually mentions two main kinds:
- Equity shares – give you voting rights and a share of profit (dividend). They’re the most common.
- Preference shares – you get dividend first, often at a fixed rate, but usually no voting right.
Quick comparison of equity vs. preference shares
| Feature | Equity Shares | Preference Shares |
|---|---|---|
| Voting right | Yes | No |
| Dividend rate | Variable, depends on profit | Fixed, decided beforehand |
| Risk | Higher – dividend may be zero | Lower – gets dividend before equity |
| Profit claim | After preference shareholders | First claim on profit |
Key formulas to remember
- Number of shares = Paid‑up capital ÷ Face value of one share.
- Dividend per share = (Dividend % × Face value) ÷ 100.
- Total dividend = Dividend per share × Number of shares.
📝 Likely Exam Questions
- Question: A company has a paid‑up capital of ₹12,00,000 divided into shares of ₹20 each. If a dividend of 5% is declared, what is the dividend per share?
Answer: Number of shares = 12,00,000 ÷ 20 = 60,000. Dividend per share = 5% of 20 = ₹1. So each share gets ₹1. - Question: XYZ Ltd. earned ₹8,00,000 profit and decides to pay 30% as dividend. The company has 40,000 shares of ₹25 each. Find the total dividend and dividend per share.
Answer: Total dividend = 0.30 × 8,00,000 = ₹2,40,000. Dividend per share = 2,40,000 ÷ 40,000 = ₹6. - Question: Differentiate between equity shares and preference shares in two points.
Answer: Equity shares carry voting rights; preference shares usually do not. Preference shares receive a fixed dividend before equity shares get any dividend. - Question: A firm declares a dividend of 10% on its face value of ₹50 per share. How much dividend will a shareholder receive for owning 150 shares?
Answer: Dividend per share = 10% of 50 = ₹5. Total = 150 × 5 = ₹750.