Shares and Dividends • Topic 2 of 3

Dividend and Return on Investment

What is a dividend? A dividend is the portion of a company's profit distributed to its shareholders. It is usually expressed as a percentage of the face value of the share.

Dividend formula: Dividend per share = (Dividend percentage × Face Value) / 100

Total dividend = Number of shares × Dividend per share

What is Return on Investment (ROI)? Return on Investment (ROI) measures how much profit you earn relative to the money you invested. For shares:

ROI = (Annual dividend income ÷ Total investment) × 100%

Important distinctions:

  • Dividend is always calculated on Face Value, not Market Value
  • Your investment depends on Market Value (what you actually paid)

Real-life analogy: If you buy a house for ₹50 lakhs (your investment) and rent it out for ₹3 lakhs per year (your income), your return is 6%. Similarly, when you buy shares, your dividend is your "rental income," and your ROI tells you how good the investment is!

Dividend is always computed on the face value of a share Dividend is computed on FACE value Face Value ₹10 Dividend rate 12% Dividend / share = 12% × ₹10 = ₹1.20 Own 500 shares: total dividend = 500 × ₹1.20 = ₹600 Return on investment compares annual income to the money invested Return % = income ÷ investment × 100 Investment (you pay MV) 100 shares × MV ₹50 = ₹5000 Annual income (dividend on FV) ₹150 = 100 × (15% of ₹10) = 100 × ₹1.50 Return = (150 ÷ 5000) × 100 = 3%
Solved Examples
1
Worked Example
A company declares a 15% dividend on shares of face value ₹20. Find the dividend per share.
Solution
  1. Step 1: Face value = ₹20
  2. Step 2: Dividend rate = 15%
  3. Step 3: Dividend per share = 15% of ₹20 = (15/100) × 20
  4. Step 4: = 0.15 × 20 = ₹3

Answer: ₹3 per share

2
Worked Example
Rohan owns 300 shares of ₹25 each. The company pays a 12% dividend. Find his annual dividend income.
Solution
  1. Step 1: Dividend per share = 12% of ₹25 = (12/100) × 25 = ₹3
  2. Step 2: Number of shares = 300
  3. Step 3: Total dividend = 300 × 3 = ₹900

Answer: ₹900

3
Worked Example
Neha bought 200 shares of a company at ₹150 each (market value). The face value is ₹100 and the dividend declared is 18%. Calculate her return on investment (ROI).
Solution
  1. Step 1: Total investment = 200 × 150 = ₹30,000
  2. Step 2: Dividend per share = 18% of ₹100 = ₹18
  3. Step 3: Total dividend = 200 × 18 = ₹3,600
  4. Step 4: ROI = (Total dividend / Total investment) × 100
  5. Step 5: = (3600 / 30000) × 100 = 12%

Answer: 12%

Key Points

  • Dividend is always calculated on Face Value, not Market Value
  • Dividend per share = (Dividend rate × Face Value) / 100
  • Total dividend = Number of shares × Dividend per share
  • ROI = (Total dividend / Total investment) × 100%
  • A higher dividend rate doesn't always mean better return — consider market price
  • Dividends are paid from company profits (not guaranteed every year)
Quick Check — 4 MCQs
Tap an option to check your answer0 / 4
Q1.Dividend is always calculated on the:
Explanation: Dividend $\%$ of face value.
Q2.The dividend per share equals:
Explanation: On the face value.
Q3.The return $\%$ on investment is:
Explanation: Income over money invested.
Q4.A $\textsf{Rs }100$ share paying an $8\%$ dividend gives per share:
Explanation: $8\%$ of $100$.
Practice more MCQs → 📝 Assignment · 35 marks