Dividend

Meaning:

A dividend is defined as a portion of a company’s profit that is distributed to its shareholders. When a company generates profit, it has the option to reinvest that profit back

into the business or distribute a portion of it to shareholders in the form of dividends.

Example:

For instance, if a company declares a dividend of ₹10 per share and an investor owns 1,000 shares, they would receive ₹10,000 as a dividend. This distribution reflects the

company's profitability and commitment to returning value to its shareholders.

How to understand Dividend

Dividends are crucial for providing income to shareholders, complementing potential gains  from stock price appreciation.  The consistent payment of dividends indicates a company's financial strength and stability, as

only profitable firms can afford to distribute profits to shareholders.

Importance of Dividends:

They help build investor trust, as dividends serve as evidence that the company generates real  profits.

Dividends can reduce investment risk by providing regular returns, which is particularly  beneficial during periods of slow stock price growth.  They contribute to long-term wealth creation, especially when dividends are reinvested to  purchase additional shares.

Uses of Dividends:

Dividends provide passive income for investors, allowing them to benefit financially without  selling their shares.

Many retirees rely on dividend stocks as a source of retirement income.  Investors often reinvest dividends through Dividend Reinvestment Plans (DRIP) to acquire

more shares over time.  Companies that pay dividends frequently attract long-term investors, positively impacting

their market valuation.  Understanding the tax implications of dividends is essential, as different countries may have

varying tax rules regarding dividend income.