Why should you care about shares and dividends?
Imagine you own a tiny piece of a giant chocolate factory. Every time the factory sells chocolate, you get a slice of the profit. That slice is called a dividend, and your tiny piece is a share. In school exams, you’ll be asked how to figure out exactly how big that slice is.
💡 In Simple Words: A share is a small ownership unit of a company. When the company makes profit, it can share part of that profit with its owners – those are dividends. You just need a few numbers to find out how much each share gets.
What is a share?
A share (also called a stock) is a unit that represents a part‑ownership in a company. Think of a pizza cut into equal slices – each slice is a share. If you own one slice, you own one share. The total number of slices is the authorized share capital (the maximum number of shares a company can issue). The issued share capital is how many slices have actually been given out.
Key terms you’ll see
- Nominal (or face) value: the original price printed on the share certificate, like the label on a candy.
- Market price: the price at which the share is bought or sold in the stock market, which can go up or down.
- Shareholder: anyone who owns one or more shares – you’re a shareholder if you own a slice.
Dividends – the profit share
A dividend is the money a company gives to its shareholders out of its profit. Companies don’t have to give a dividend every year, but when they do, they announce a dividend rate (often a percentage of the face value) or a fixed amount per share.
For example, if a company declares a dividend of 10% on a share with a face value of ₹100, each share gets ₹10. It’s like saying, “Every slice of pizza gets an extra bite of cheese worth ₹10.”
How to calculate dividend per share
There are two common ways schools ask you to find the dividend:
- Using dividend rate: Dividend per share = (Dividend rate × Face value) / 100
- Using total profit and total shares: Dividend per share = Total dividend amount ÷ Number of shares
Let’s walk through a worked example.
Worked Example 1 – Using dividend rate
ABC Ltd. has a face value of ₹50 per share. The board declares a dividend of 8%.
Step 1: Write down the formula: Dividend per share = (Rate × Face value) / 100
Step 2: Plug in the numbers: (8 × 50) / 100 = 400 / 100 = ₹4 per share.
So every shareholder gets ₹4 for each share they own.
Worked Example 2 – Using total profit
XYZ Ltd. earned a profit of ₹2,00,000. The board decides to distribute 50% of the profit as dividend. The company has 5,000 shares issued.
Step 1: Find total dividend amount: 50% of ₹2,00,000 = ₹1,00,000.
Step 2: Divide by number of shares: ₹1,00,000 ÷ 5,000 = ₹20 per share.
Each share will receive ₹20.
Quick Comparison: Shares vs. Debentures
| Feature | Shares | Debentures |
|---|---|---|
| Ownership | Yes – you own part of the company | No – you are a lender |
| Dividend | Profit share, not guaranteed | Fixed interest, guaranteed |
| Risk | Higher – value can fall | Lower – fixed return |
Step‑by‑step flow of dividend distribution
Common mistakes to avoid
- Mixing up face value with market price. The face value is fixed; the market price can change daily.
- Forgetting to divide the total dividend amount by the number of shares when using the profit method.
- Assuming a dividend is always paid. Companies may retain profit for expansion.
Bullet summary – what you must remember
- Share = a unit of ownership.
- Dividend = profit shared with shareholders.
- Dividend per share (using rate) = (Rate × Face value) / 100.
- Dividend per share (using profit) = (Total profit × Distribution % ) ÷ Number of shares.
- Always check whether the question gives rate or total dividend amount.
📝 Likely Exam Questions
- ABC Ltd. has 10,000 shares of ₹100 each. The board declares a dividend of 5%. Find the dividend per share and the total dividend paid.
Answer: Dividend per share = (5 × 100)/100 = ₹5. Total dividend = 5 × 10,000 = ₹50,000. - XYZ Ltd. earned ₹3,00,000 profit. It decides to pay 40% of profit as dividend. The company has 6,000 shares issued. Calculate dividend per share.
Answer: Total dividend = 0.40 × 3,00,000 = ₹1,20,000. Dividend per share = 1,20,000 ÷ 6,000 = ₹20. - A company’s share has a face value of ₹25. If the dividend declared is ₹2 per share, what is the dividend rate?
Answer: Rate = (Dividend per share × 100) ÷ Face value = (2 × 100)/25 = 8%. - Explain why a rise in market price does not affect the dividend per share.
Answer: Dividend per share is calculated using the face value and the declared rate or total profit, not the market price. Market price only shows what investors are willing to pay now.