Returns received by investors in equities come in two forms
a. Growth in the value (market price) of the share and
b. Dividends.

Dividend is distribution of part of earnings to shareholders, Typically twice a year in the form of a final dividend and an interim dividend. Dividend is therefore a source of income for the shareholder.

Normally, the dividend is articulated on a 'per share' basis, for instance – Rs. X per share. This kind of articulation makes it easy to see how much of the company's profits are being paid out as dividend, and how much are being retained by the company to reinvest in business.

For example: A company that has earnings per share in the year of Rs. 10 and pays out Rs. 5 per share as a dividend is passing half of its profits on to shareholders and retaining the other half.

Directors of a company have carefulness as to how much of a dividend to declare or whether they should pay any dividend at all. Before declaration they may think about opportunity cost of issuance.


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