Section: 1 What is Return?

Sub Section: 1 Dividends

Dividends

Corporations pay out a portion of the profits earned as dividend to its shareholders. Though there is no compulsion for companies to declare a dividend, most companies pay out dividends. Ideally, companies with high growth potential should divert all funds to business expansion. Dividend decision is taken by the board of directors of the company on quarterly, semi-annual or annual basis.

 

Dividends may take different forms i.e. cash or stocks. Unlike debt, dividend percentage is determined by the board of directors on a case-by-case basis.

 

It should be noted that the dividend percentage is computed on the par value of shares, not on the market value of shares. For instance, if the par value is SR 50.00 and the share is trading at SR 125.00 in the market, 10% dividend would be 10% x SR 50.00 = SR 5.00 per share (not on the market value of SR 125).

Dividend Yield

Dividend yield could be simply expressed as dividend return per share relative to its’ market value. This is calculated using the following formula:

 

            Dividend Yield              =          Dividend Per Share X 100

                                                         Market Value Per Share 

 

In the above example dividend yield for the investment can be calculated as:

 

Share price =  SR 125.00 per share

Dividend     =  SR 5.00 per share

 

Therefore dividend yield is  =  (5/125) x 100  =    4%

 

An example:

 

Company: ABC.

 

Dividend History

 

 

To be entitled for dividend, one must hold shares of the company on a specified date. The shares that are trading with the dividend are called Cum-Dividend and shares trading excluding the dividend are known as Ex-Dividend. 

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