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One secret about Dividends

Science of Alpha from Safety

One secret about Dividends

The origins of dividends, why they are paid to shareholders, why dividend yields are low in India and a high dividend portfolio revealed.

“What exactly is a dividend, Vikram?”, I asked as we were sitting across the breakfast table in Vikram’s apartment in Mumbai. To escape the New York City cold, I had decided to pay a long visit to my friend, Vikram, from my alma mater days.

“Of course, you know what dividends are, Whittle. They are the share of profits that a company pays to its shareholders. But since you have asked, let me explain. I know this is Finance 101 basics but it always helps to review.”

“A company is formed by the coming together of several individual shareholders or investors. The shareholders invest capital in the business as equity and are given “shares” in the company. Another set of investors also invest capital in the company and are called bond holders. These investors are promised a specific interest rate on their capital which will be paid to them regularly.”

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