Question 1

What is dividend yield and how is it calculated?

Accepted Answer

Dividend yield is the annual dividend paid by a company expressed as a percentage of the current stock price. Formula: Dividend Yield = (Annual Dividend per Share / Current Stock Price) × 100. For example, if a stock trades at ₹100 and pays ₹5 annual dividend, the dividend yield is 5%.

Question 2

What is a good dividend yield for Indian stocks?

Accepted Answer

A dividend yield of 2-5% is generally considered good for Indian stocks. Yields above 5-6% may indicate undervaluation or a declining stock price (which can be a red flag). Blue-chip dividend payers like Coal India, ITC, ONGC, and Power Grid often yield 4-7%. PSU companies tend to have higher yields than private sector growth stocks.

Question 3

Is dividend income taxable in India?

Accepted Answer

Yes, since April 2020, dividends received from Indian companies are taxable in the hands of investors at their applicable income tax slab rate. TDS is deducted at 10% if dividend income exceeds ₹5,000 per year from a single company. Previously, dividends were tax-free in investors' hands (the company paid DDT).

Question 4

Dividend yield vs growth stocks: which to choose?

Accepted Answer

High dividend yield stocks suit investors seeking regular income (retirees, conservative investors). Growth stocks retain profits for expansion, offering lower or no dividends but higher capital appreciation potential. For long-term wealth creation in India, a blend of both is ideal, dividend stocks for stability, growth stocks for capital gains.

Question 5

How often do Indian companies pay dividends?

Accepted Answer

Most Indian companies pay dividends annually after their financial year results. Some companies pay interim dividends (during the year) and final dividends. SEBI requires companies to pay dividends within 30 days of declaration. PSU companies often pay special dividends when directed by the government.

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