Stocks

In this episode, we dive deeper into dividends. We explain the basics of dividends, and various dates associated with them. Not only this, we also touch upon the impact of dividends on stock prices, the taxation on dividend income.

All you need to know about dividends 

Here we talk everything about stock splits. What is stock split and how does it work? What is the impact of stock splits on stock prices? We will answer all of your questions about stock spilt in this episode!

What is stock split?

Investors love bonus shares, isn't it? But what exactly are they, and why would a company offer shares for free? In this episode, we will learn everything about bonus issues and how do they impact us as investors.

What are bonus shares?

In this episode, we talk about a rather uncommon corporate action called a Rights Issue. We will learn what is a rights issue and how does it impact the stock price of a company. Moreover, we will understand the reasons behind companies going for a rights issue.

What is rights issue?

Why would a company buy its' own shares back from investors? Well, that is exactly what we will explain in this episode. We will look into the concept of share buyback and also see its' impact on stock prices.

What is a buyback?

Now that we have learnt everything about an IPO, we address the most important question - How to apply for an IPO? Furthermore, we will also give you insights on how to increase your chances of getting an IPO allotment.

How to invest in an IPO?

Here we cover the 5 major corporate actions including dividends, stock split, bonuses, rights issue and buybacks. It goes into why companies do it, their impact on stock prices and much more

Corporate Actions and their impact on stock prices

Introduction:<ul><li style="font-weight: 400;">We hope your journey has been smooth till now. Till now, we have covered some basics to know before investing in the stock market and have told you everything you need to know about IPOs.</li><li style="font-weight: 400;">In the upcoming videos, we will talk about the various corporate actions carried out by the company that has a significant impact on shareholders. A corporate action is any action taken by a company that has a significant impact on the company and its stakeholders. A stakeholder is any entity that hasan interest in the business. They can be employees, investors, customers etc. We will talk aboutdividends, stock splits, bonuses, rights issues, buybacksand all such terms that you would have come across while reading the financial news.&nbsp;</li><li style="font-weight: 400;">In this video, we will talk about dividends, why companies give dividends, their impact on stock prices and also talk about the different dividend dates(Show one after the other). We will also cover how dividends are taxed.&nbsp;</li></ul>What are dividends?<ul><li style="font-weight: 400;">Adividend is a share of profitsthat a company pays out to its shareholders. Let&rsquo;s say that a company has been earning profits for a long time. It can either reinvest this profit back into the businessand expand or pay it out to shareholders as a dividend. A dividend&rsquo;s value is determined on a per-share basis and is paid equally to all shareholders</li><li style="font-weight: 400;">It is not mandatory for a company to pay dividends. How much dividend a company pays is decided by its board of directors and it requires shareholders approval&nbsp;</li><li style="font-weight: 400;">A good metric to measure how much a company pays out in the form of dividends is the dividend yield. It is calculated by dividing the dividend paid per share divided by the market price of the share. For example: if a company with a stock price of Rs 100 announces a dividend of Rs 10 per share, the dividend yield would amount to 10%.&nbsp;</li></ul>Why do companies give dividends?:<ul><li style="font-weight: 400;">Companies generally pay dividends to reward their shareholders</li><li style="font-weight: 400;">A company giving a large amount of their profits as dividends might also show that the company does not have enough good projects to invest inand might show a lack of growth opportunities</li><li style="font-weight: 400;">Investors tend to find regular dividend-paying companies attractive. It gives them consistent cash flows. Investors might see dividend payments as a sign of a company&rsquo;s strength and stability.&nbsp;</li></ul>Dividend Dates:<ul><li style="font-weight: 400;">In order to understand dividends, it is important to know about all the important dates when a company declares a dividend. Let&rsquo;s cover them one by one.&nbsp;</li><li style="font-weight: 400;">The first date that you need to know about is the dividend declaration date.This is the date when the company&rsquo;s board of directors declare the dividendamount along with the record date and the payment date of the dividend. For example: On 19th June 2021 HDFC Bank declared a dividend of 6.5 Rs per share.&nbsp;</li><li style="font-weight: 400;">The second important date you need to know about is the ex-dividend date.The ex-dividend date is the date before which you need to buy the shares of a companyin order to get the dividend. In our example, the ex-dividend date for HDFC Bank&rsquo;s ex-dividend date was on 29th June 2021. This means that you had to buy HDFC Bank shares by 28th June 2021 in order to get the dividend</li><li style="font-weight: 400;">The third date which you need to know about is the record date. The record date is the date by which investors need to be there on the shareholder&rsquo;s record of the company if they want to receive the dividend. It means that investors need to hold the shares on this date to receive the dividend. This is why you need to buy the shares before the ex-dividend date. This is because it takes 2 trading daysfor the shares to get reflected in your Demat account. In the case of HDFC Bank, the record date was 30th June 2021. This means that if you bought the shares before the ex-dividend date on 28th June 2021 then you would have the shares in your Demat account by 30th June 2021.&nbsp;</li><li style="font-weight: 400;">The fourth date is the payment date.As the name suggests, this is the date when the dividend is paid to the investors. In the case of HDFC Bank, the payment date was set at 2nd August 2021.&nbsp;</li></ul>Impact on Stock Price:<ul><li style="font-weight: 400;">The declaration of a dividend generally encourages investors to buy the stock. Since investors know that they will get a dividend if they purchase the stock before the ex-dividend date, they are willing to pay a higher price for the stock. This may cause the price of a stock to increase in the days leading up to the ex-dividend date. In general, the increase should be equal to the amount of the dividend per share, but the actual price change is based on market activity.&nbsp;</li><li style="font-weight: 400;">On the ex-dividend date, investors may drive down the stock price. This is because new investors are not eligible to receive dividends and are therefore not willing to pay extra</li></ul>How are dividends taxed?<ul><li style="font-weight: 400;">&nbsp;Any dividend income from shares of an Indian company is taxable in India. Thedividends are taxed at the tax slab applicable to you.</li></ul>Conclusion:<ul><li style="font-weight: 400;">Now that you have a firm understanding of dividends, we will move on to stock splits in the next video.</li><li style="font-weight: 400;">We will look at why companies split their stock and their impact on the stock price. We will also look into some recent examples of stock splits to explain the concept more clearly.&nbsp;&nbsp;</li></ul>

All you need to know about dividends

Transcript