When investors buy shares of companies they become a part owner of the company, so whenever the company makes profit it shares a portion of its profits with the shareholders, this type of payment is called a dividend.
The main idea of dividend investing is to get regular payments after buying such stocks. These payouts turn out to be shareholders rewards, but you should know that these rewards don’t always come in cash, there are several different types of dividends.
Some of the dividends are cash dividends where the shareholders get the money directly, but sometimes the company also gives stock dividends in which the shareholders get additional stocks. Sometimes the timing also matters, shareholders can get dividends in the middle of the year or at the end of the financial year. Let’s look at the different types of dividends and see their characteristics.
The Different Types of Dividends
1. Interim Dividend
This type of dividend acts as a mid-year bonus where the company looks at its profit of the first six months and if the company is doing well then it decides to share its success with its shareholders in the mid-year. The decision to release interim dividend is made by the board of directors based on profits that are not yet fully audited, they are confident about the company’s performance.
2. Final Dividend
Shareholders get dividend payments at the end of the year, companies release the dividend payment after the full performance is calculated and all the accounts are officially audited. The final dividend payments shall be approved by all the shareholders in the Annual General Meeting (AGM) as well as the board of directors recommending this as it is based on the yearly profits, the final dividend is usually greater and also a sign of companies good health.
3. Cash Dividend
This is one of the popular types of dividend, in which the company directly deposits money to the bank account linked to your demat account. If a company declares a cash dividend of Rs.10 per share and you own 100 shares of that company then you will automatically receive Rs.1,000 in your bank account.
4. Stock Dividend
This is a type of dividend where the company wants to reward its shareholders but wants to hold cash for personal use, in this case the companies issue stock dividends to their shareholders, also known as bonus issue. The shareholders get additional shares to their demat account, for instance a 5% stock dividend means you get 5 extra shares for every 100 you own.
Although traders should know that the stock dividend doesn’t instantly increase your investment value. When the total shares increase, the price of each share falls to balance it out making your holdings remain roughly the same right after the bonus issue.
5. Special Dividend
This is just a one-time payment that the shareholders get after an unexpected profitable year of the company. These are much larger than the regular dividends as compared to interim, final or cash dividends. In 2025 Indian companies like Akzo Nobel India announced a special dividend of Rs.156, though special dividends are not repeated annually.
6. Property Dividend
This is a very unique and very uncommon type of dividends but still they exist. In this the company instead of paying dividends in cash or stocks pays with its assets or products. It is generally used when a company is low on cash but has other assets to distribute, though it is extremely rare but investors like you should know what all possibilities are there.
Read Also: What Is Dividend Yield? Definition, Formula, and Investment Insights
Factors Behind a Dividend Decision
- Booked Profit: A company can only share the rewards if it has generated enough profits in that year, as more profit earned means more capacity for dividends.
- Growth Requirements: If a company has future growth plans of increasing its capacity, infrastructure or manufacturing capacity then it keeps its profits for reinvestment in the business.
- Cash In Hand: Profits as portrayed on paper are not the same as cash in the bank, a company requires enough liquid cash to pay all its shareholders.
- Competitors Analysis: Companies often compare the competitors of the same industry and how they act. If everyone else is paying a dividend, they might feel the pressure and might do the same to keep investors happy.
- Legality: Sometimes laws or loan agreements can restrict companies in distributing their profits as dividend to the shareholders.
How does Dividend Payment works
Dividend payments follow a clear timeline and shareholders do not get the dividends instantly. There are mainly four key dates that you should know about.
- Declaration Date: On this date the company officially announces that it will be paying a dividend to its shareholders. The amount, record date and the payment date is also mentioned during this day.
- Ex-Dividend Date: To receive the dividend reward shareholders who own the stock before this date will only be eligible for dividend payments also known as the cut off day. If anyone buys it on or after the ex-date the seller will be eligible for the dividend payments.
- Record Date: On this day, the company finalizes its list of shareholders who will receive the dividend. If you bought the shares before the ex-date, your name will be on this list.
- Payment Date: This is the day when the dividends are actually paid to the shareholders. The money is automatically credited to your bank account usually within 30 to 45 days of time, after the record date.
Read Also: Top 10 Highest Dividend Paying Penny Stocks in India
Conclusion
Gaining knowledge about dividends is an essential part of your investment and financial journey. They are a reward that their shareholders get for their loyalty and confidence in the company. Whether it’s cash directly to account, additional shares in your account, or a surprise bonus, each dividend tells a story about a company’s financial health and its plans for the future.
While dividends give great benefit to investors, you should always know the limitations as well, making you a step closer to being a pro at investing so always keep learning, stay curious, and invest wisely.
Frequently Asked Questions (FAQs)
How can I check if I am eligible for a dividend or not?
Here the investors shall own the company’s shares before the ex-dividend date, to be on a safer side they should buy it at least one business day before the ex-date to ensure getting them in your demat account timely.
When and how will the dividend money reach my bank account in India?
Commonly the dividends are released on the payment date and are directly credited to your bank account that is linked with your Demat account.
Are dividends from Indian companies taxable?
Yes, from April 1, 2020, dividend income is added to your total income and taxed according to your income tax slab.
What is “dividend yield”?
Dividend yield shows you how much a company pays in dividends each year relative to its stock price, the formula is: Annual Dividend payment / Current Share Price x 100.
Are companies required to pay dividends?
It is not a type of guarantee that every shareholder will be getting dividends; rather , a company’s board of directors decides whether to pay a dividend based on its profits and financial needs. It is the will of the company to increase, decrease, or stop paying dividends at any time.
