Capital Market Chronicles – Episode 144: DIFFERENCE BETWEEN DIVIDENDS & BONUS SHARES (Part I) 🍰💸
Think of them as the difference between:
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Your rich uncle is giving you cash in hand 💵 (Dividends)
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And your rich uncle saying, “Instead of cash, I’m giving you more of my vintage stamp collection” 📜 (Bonus Shares).
One puts money in your pocket instantly. The other makes you own more without any instant cash flow. Both are rewards — but with slightly different flavours. 🍦🍫
DIVIDENDS — When Companies Pay You for Owning Them 💸
A dividend is basically a company saying:
“Here’s a slice of our profits. Thanks for sitting through all those boring AGMs.”
It’s your share of the company’s earnings — a sweet little return on your investment.
And the best part? You can spend it however you want: buy more shares, order pizza, or even frame the cheque if you miss the old days. 🖼️
How They Work:
1️⃣ Payment Basis – Cash or Shares
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Cash Dividend: Cold, hard money transferred to your account.
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Stock Dividend: More shares instead of cash — like a mini bonus issue.
Example: A company declares a 50% dividend on a ₹10 face value share → you get ₹5 per share.
Own 100 shares? That’s ₹500 extra in your account (or roughly one fancy dinner in Mumbai 🍽️).
2️⃣ Declaration – The Board Decides
The Board of Directors plays Santa Claus 🎅 — they decide if you get a dividend and how much. And yes, sometimes they skip a year (even if profits are good) because they’d rather keep the cash for business expansion, debt repayment… or just a bigger coffee machine for the office.
Types of Dividends:
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Cash Dividends 💵 – Instant gratification.
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Stock Dividends 📈 – More shares, same company, zero extra value (instantly).
Example Calculation:
Company face value = ₹10/share
Dividend = 50% → ₹5 per share
Market Price = ₹300/share
Dividend Yield = ₹5 ÷ ₹300 = 1.66%
Congratulations — you’re not retiring early with that, but hey, free money is free money. 🎉
Tax Implications (India):
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Dividends from equity shares are currently tax-free in the hands of investors (for individuals).
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But remember — tax laws change faster than Netflix recommendations, so always check the latest rules.
Dividend-Paying Stocks:
These are the market’s “steady eddies” — companies that keep paying dividends year after year. Income-focused investors love them because even in volatile markets, they’re like that one friend who always shows up with snacks. 🍪
Key Ratios for Dividend Lovers:
Dividend Yield
Shows how much you’re earning from dividends relative to the share price.
Example: Company declares 200% dividend on ₹2 face value share = ₹4 per share.
If the stock trades at ₹400, your yield is 1%.
(Translation: enough to cover one samosa a year. 🥟)
Dividend Coverage Ratio
Formula: EPS ÷ Dividend per Share
Higher = Safer.
Low ratio = They’re paying you with the last few coins in their wallet. 🪙
Dividend Cover
Formula: Net Profit available to Equity Shareholders ÷ Dividends paid
High = Company is healthy.
Low = Company might be pretending everything’s fine while furiously checking its bank balance.
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