Why learn about shares and dividends?
Ever wondered how a tiny piece of a big company can put money in your pocket? That’s the magic of shares and dividends – and it’s not just for adults.
💡 In Simple Words: A share is a slice of ownership in a company. When the company earns profit, it may give a part of that profit back to you, called a dividend. So, you own a piece and sometimes get a cash reward.
What exactly is a share?
A share (also called a stock) represents one unit of ownership in a business. Think of a pizza cut into equal slices – each slice is a share. If you own 5 slices of a 100‑slice pizza, you own 5% of the whole.
Types of shares you’ll meet in ICSE
- Equity share: Gives you voting rights and a claim on profits.
- Preference share: Usually no voting right, but you get a fixed dividend before equity shareholders.
What is a dividend?
A dividend is the portion of a company’s profit that is paid out to its shareholders. It’s like a thank‑you cheque for holding a piece of the business. Companies can pay dividends in cash, extra shares, or other assets, but cash is the most common in school problems.
How is dividend per share calculated?
First, find the total dividend the company decides to distribute. Then divide that amount by the total number of shares issued. The formula looks like this:
| Step | Formula |
|---|---|
| Total dividend | Profit × Dividend % (or a stated amount) |
| Dividend per share | Total dividend ÷ Number of shares |
Worked example 1
ABC Ltd. earned ₹200,000 profit and declared a 10% dividend. It has issued 20,000 shares.
- Total dividend = 10% of ₹200,000 = ₹20,000.
- Dividend per share = ₹20,000 ÷ 20,000 = ₹1 per share.
If you own 150 shares, you receive 150 × ₹1 = ₹150.
Worked example 2 – Preference shares
XYZ Ltd. has 5,000 preference shares with a fixed dividend of 8% on a face value of ₹100 per share.
- Dividend per share = 8% of ₹100 = ₹8.
- Total dividend to preference shareholders = 5,000 × ₹8 = ₹40,000.
Equity shareholders get any remaining profit after this amount.
Quick comparison of key points
- Shares = ownership slice; dividend = profit slice.
- Equity shares can vote; preference shares usually cannot.
- Dividend per share = (Total dividend) ÷ (Number of shares).
- Preference shareholders get their dividend first.
📝 Likely Exam Questions
- XYZ Ltd. has 10,000 equity shares. The profit for the year is ₹500,000 and the board declares a 12% dividend. Find the dividend per share and the amount received by a shareholder who owns 250 shares.
Answer: Total dividend = 12% of ₹500,000 = ₹60,000. Dividend per share = ₹60,000 ÷ 10,000 = ₹6. Amount for 250 shares = 250 × ₹6 = ₹1,500. - Explain the difference between equity shares and preference shares in two sentences.
Answer: Equity shares give voting rights and a variable dividend based on profit; preference shares usually have no voting right but receive a fixed dividend before equity shareholders. - A company with a profit of ₹1,00,000 declares a dividend of 5%. If it has 4,000 shares, calculate the dividend each shareholder gets.
Answer: Total dividend = 5% of ₹1,00,000 = ₹5,000. Dividend per share = ₹5,000 ÷ 4,000 = ₹1.25. - What is meant by ‘dividend yield’ and how is it useful for an investor?
Answer: Dividend yield is the dividend per share divided by the market price of the share, expressed as a percentage. It shows how much cash return an investor gets relative to the share’s price.