How Dividends Work
When and why companies pay you a share of profits, and the dates that decide who gets paid.
A dividendA cash payout of company profits to shareholders. is a cash payment a company makes to its shareholders out of its profits — your slice of the earnings, paid directly to you for simply owning the stock. Mature, profitable companies that don’t need to reinvest every rupee often return some to owners this way.
- Declaration date — the company announces it willArranging how your wealth passes on after death. pay a dividendA cash payout of company profits to shareholders. of ₹X per shareA unit of ownership in a company..
- Record dateThe date a company checks who owns its shares. — you must be on the shareholder register on this date to get paid.
- Ex-dividend dateThe cutoff to buy a stock and still get its dividend. — set just before the record dateThe date a company checks who owns its shares.; buy on or after this and you do NOT get this dividendA cash payout of company profits to shareholders. (the seller does). Buy before it and you qualify.
- Payment date — the cash actually lands in your account.
A dividendA cash payout of company profits to shareholders. isn’t free money appearing from nowhere — on the ex-dividend dateThe cutoff to buy a stock and still get its dividend., the shareA unit of ownership in a company. price typically drops by roughly the dividendA cash payout of company profits to shareholders. amount. The company is handing you cash it used to hold, so the business (and the stock) is worth that much less. You’ve moved value from “shareA unit of ownership in a company. price” to “cash in hand,” not created new wealth. This is why chasing a stock just before its dividend rarely wins.
ExampleA ₹500 stock declares a ₹10 dividendA cash payout of company profits to shareholders.. On the ex-dateThe cutoff to buy a stock and still get its dividend. it tends to open near ₹490. If you owned it before, you now hold a ₹490 shareA unit of ownership in a company. plus ₹10 cash = ₹500 — same total. The dividendA cash payout of company profits to shareholders. rewarded ownership; it didn’t magically add value.
Key takeawayA dividendA cash payout of company profits to shareholders. is your shareA unit of ownership in a company. of company profits, paid in cash. The ex-dividend dateThe cutoff to buy a stock and still get its dividend. decides who qualifies, and the price typically falls by the dividendA cash payout of company profits to shareholders. amount — so it’s a transfer from shareA unit of ownership in a company. value to cash, not free money.
FAQs
Can I buy a stock just before the dividend to grab it, then sell?
Usually not worth it — the price drops by about the dividend on the ex-date, so you gain the cash but lose roughly the same in share value (and may owe tax on the dividend). This “dividend stripping” rarely produces a free profit.