Shareholders earn returns on their investments in equity in two ways; One is by receiving capital appreciation and the second is by receiving dividends that companies pay to their shareholders.

What is the dividend in the stock market?

Companies that make a profit (after paying their creditors) choose to reinvest that profit in business, it can pay shareholders, repurchase shares or pay off their loans. When paid to shareholders, it is known as dividend. These payments are commonly known as cash dividends which are made as cash dividend, but in some cases, they can also choose to make these payments as shares known as stock dividend.

Dividends yield is often an essential factor for investors when choosing which stocks to invest in. Dividend yield is calculated at the current share price.Example: If Braj Ltd. declares the dividend of Rs. 5/share and the market value of the stock is Rs. 25 then:

Dividend yield = Full year dividend/current share price In this case it is: 5/25 = 0.2 or 2%Payment of dividend does not affect the fundamental value of the share price of a company.

Companies that have a early stage of their life cycle and choose a higher growth to generally facilitate growth for most of their profits reinvest in the company. Well established companies pay dividends regularly to reward loyal shareholders.

How do stock dividend work?

A company may choose to pay stock dividends for a number of reasons; Earlier they do not want to reward shareholders despite reducing the cash balance of the company or having insufficient cash reserves.

Stock dividend payments could lower the share price, which could signal an increase in trade and an improvement in liquidity. Lower share prices increase liquidity as one is more likely to sell shares that cost Rs 100 instead of a sale that can cost Rs 50. For investors who are considering receiving immediate cash flow, cash dividends may seem like a better option.

On the other hand, stock dividends offer an option to the investor. They may opt to remain invested in the company with large shares in the hope that the company will perform better with reinvested funds or they may decide to sell some new shares and generate cash flow for themselves.

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Hi , This is Pramod Choudhary from Nagaur Rajasthan India. I an student and I would like to share my positive thinking with everyone that's my passion . Thank you