Introduction — What is a Dividend?
A dividend is money or extra shares that a company gives to its shareholders from its profit. Companies share profit to reward owners (shareholders). In Nepal, companies listed on NEPSE usually give two kinds of dividends: cash dividend (money) and bonus shares (new shares). But there are also other forms and related actions investors should understand.
Why Companies Pay Dividends
- Reward shareholders for trusting and investing.
- Show that the company is profitable and financially stable.
- Build investor confidence and attract long-term holders.
- Follow company policy or maintain market reputation.
Types of Dividends and Related Corporate Actions in Nepal
In the Nepali share market, dividends come in several types. Each one affects your returns, tax, and the company’s financial position differently.
1. Cash Dividend (नगद लाभांश)
This is the simplest and most common type of dividend. The company pays shareholders in actual money (NPR) per share.
How it works:
If a company declares Rs. 10 cash dividend per share and you own 100 shares, you’ll get Rs. 1,000 before tax. The payment is sent directly to your registered bank account through the CDSC system.
Tax:
There’s a 5% withholding tax on cash dividends, deducted before payment. You receive the net amount after tax.
Advantages:
- You get real cash you can spend or reinvest.
- Great for investors who want stable income.
- Indicates that the company has strong liquidity.
Disadvantages:
- The company’s cash balance decreases.
- Share price often drops by the dividend amount after book closure.
2. Bonus Shares (बोनस सेयर)
Instead of giving cash, the company gives additional shares to shareholders. This is called a stock or bonus dividend.
How it works:
If the company announces a 20% bonus share and you hold 100 shares, you get 20 extra shares — total 120 shares.
Price Adjustment:
After the issue, NEPSE automatically adjusts the share price downward to balance the increased quantity of shares. Your total investment value remains roughly the same.
Tax:
Even bonus shares are subject to a 5% tax on their face value, which is usually deducted when issuing the bonus.
Advantages:
- The company doesn’t lose cash.
- Increases the number of shares, improving liquidity in the market.
- Encourages long-term holding.
Disadvantages:
- You don’t get immediate money.
- Slight dilution in earnings per share.
- Fractional shares (like 0.8 shares) are handled separately — sometimes rounded off or compensated in cash.
3. Stock Split (सेयर विभाजन)
A stock split is not technically a dividend, but it’s a related corporate action often confused with bonus shares.
How it works:
A company divides its shares into smaller units by reducing the face value. For example, if the face value is Rs. 10 and the company splits 1:2, then the face value becomes Rs. 5 and the number of shares doubles.
Difference from Bonus Shares:
In a stock split, total capital remains the same — only the face value per share changes. But in a bonus issue, part of the company’s reserves is converted into share capital.
Purpose:
- To make shares more affordable for small investors.
- To increase market liquidity.
Impact:
The share price usually drops proportionally, but total value remains the same.
4. Right Shares (अधिकार सेयर)
Right shares allow existing shareholders to buy new shares at a discount before they’re offered to the public.
How it works:
If a company offers a 1:4 right issue, then for every 4 shares you own, you can buy 1 new share at a fixed price (usually lower than the market rate).
Purpose:
- To raise fresh capital for expansion, debt repayment, or new projects.
- To give loyal shareholders first priority.
Advantages:
- You can increase your shareholding at a lower price.
- The company gets new funds without borrowing.
Disadvantages:
- You must pay to buy right shares.
- If you don’t buy them, your ownership percentage (holding) decreases.
- The market price may fall temporarily due to the increase in total shares.
5. Interim Dividend (अन्तरिम लाभांश)
This is a dividend declared and paid before the company’s Annual General Meeting (AGM), often mid-year.
How it works:
If the company earns high profit during the fiscal year, it can declare an interim dividend to reward shareholders early. The final dividend is then declared later during the AGM.
Advantages:
- Shareholders get faster returns.
- Signals strong financial performance.
Disadvantages:
- May reduce flexibility for the company at year-end.
- If profit later falls, total dividend may get reduced.
Key Rules and Laws About Dividends in Nepal
- Companies must follow the Securities Act and SEBON (Securities Board of Nepal) regulations before declaring any dividend.
- Dividends can only be declared from actual profit — not from capital or borrowed funds.
- For banks and financial institutions, Nepal Rastra Bank (NRB) guidelines apply.
- Dividend proposals must be approved by the Board of Directors first and later by shareholders during the Annual General Meeting (AGM).
Step-by-Step: How Dividend Is Declared and Paid
- Board Meeting – The company’s board recommends a dividend amount.
- Announcement – Proposed dividend and AGM date are made public.
- Book Closure / Record Date – Only shareholders who hold shares before this date are eligible.
- AGM Approval – Shareholders approve or reject the dividend proposal.
- Payment / Distribution – After approval, dividends are credited to bank accounts (cash) or added to portfolios (bonus).
Key Dates and Terms
| Term | Meaning | Example |
|---|---|---|
| Announcement Date | When company declares proposed dividend | Seen in NEPSE or news |
| Book Closure Date | Cut-off date for eligibility | Must hold before this day |
| AGM Date | Official meeting for approval | Dividend finalized here |
| Payment Date | When money/shares are distributed | Usually a few weeks later |
| Tax Deduction | Tax taken from your dividend | 5% commonly on cash/bonus |
How You Receive Dividends in Nepal
- Own shares before book closure. If you buy after the record date, you won’t get any dividend.
- Keep bank details updated. Companies send cash dividends to the linked bank account under your Demat number.
- Watch your broker/CSD notices. For bonus shares, they will appear automatically in your portfolio.
- Tax is deducted at source. You receive the final amount after withholding tax.
Example Calculation
| Item | Amount (NPR) |
|---|---|
| Cash Dividend per Share | 10 |
| Shares Held | 100 |
| Gross Dividend | 1,000 |
| Tax (5%) | 50 |
| Net Amount | 950 |
What Happens to Share Price After Dividend?
After a dividend is declared, the share price often drops roughly by the dividend amount on the ex-dividend day. This happens because the company’s total value decreases by the amount paid out. However, market sentiment, demand, and other factors can also affect prices.
Common Mistakes by New Investors
- Buying after book closure and expecting dividends.
- Forgetting to update bank/KYC details.
- Thinking dividends are guaranteed every year.
- Ignoring the effect of tax on returns.
Key Takeaways
- Dividend = company’s profit shared with shareholders.
- Own shares before book closure to be eligible.
- Cash dividends give money; bonus shares give more shares.
- Companies must follow SEBON, NRB, and company law rules.
- Taxes apply even to bonus shares.
Nepali Section — नेपालीमा सरल व्याख्या
डिभिडेन्ड भनेको के हो?
कम्पनीले गरेको नाफाबाट सेयरधनीलाई पैसा वा अतिरिक्त सेयर दिने प्रक्रिया हो। यसले सेयरधनीलाई प्रतिफल दिन्छ र कम्पनीको स्थायित्व देखाउँछ।
नेपालमा डिभिडेन्डका प्रकारहरू
- नगद लाभांश (Cash Dividend): कम्पनीले प्रतिशेयर निश्चित रकम बैंक खातामा पठाउँछ। कर कटाइएर बाँकी रकम पाइन्छ।
- बोनस सेयर (Bonus Shares): कम्पनीले नगद नदिई थप सेयर वितरण गर्छ। यसले लगानीकर्ताको सेयर संख्या बढाउँछ तर नगद आउँदैन।
- राइट सेयर (Right Shares): पुराना सेयरधनीले नयाँ सेयर सस्तोमा किन्न पाउने अधिकार पाउँछन्।
- स्टक स्प्लिट (Stock Split): सेयरको अंकित मूल्य घटाएर सस्तो बनाउने तर कुल पूँजी परिवर्तन नहुने प्रक्रिया हो।
- अन्तरिम लाभांश (Interim Dividend): आर्थिक वर्ष सकिनुअघि दिइने अस्थायी डिभिडेन्ड हो।
कसरी पाउने?
बुक क्लोज मिति भन्दा पहिले सेयर किनेर राख्नुपर्छ। AGM पछि डिभिडेन्ड स्वीकृत भएपछि बैंक खातामा रकम आउँछ वा बोनस सेयर Demat खातामा थपिन्छ।
थाहा हुनुपर्ने कुरा:
- कर ५% जति काटिन्छ।
- डिभिडेन्ड पाउन बैंक र KYC जानकारी अद्यावधिक राख्नुपर्छ।
- सबै कम्पनीले हरेक वर्ष डिभिडेन्ड दिँदैनन्।
Frequently Asked Questions (FAQs)
Q1. If I buy on the book-closure date, do I get the dividend?
No. You must own the share before the book-closure date.
Q2. How will I get the cash dividend?
Through your linked bank account under CDSC.
Q3. Are dividends taxable in Nepal?
Yes, usually 5% withholding tax on both cash and bonus.
Q4. Why does share price drop after dividend?
Because the company’s cash or reserves are reduced, lowering total value.
Conclusion
Dividends are the main way Nepali companies reward their shareholders. To benefit, investors must understand how dividend announcements, book-closure dates, AGMs, and taxes work. Whether it’s cash, bonus, or rights shares — knowing the details helps you make better investment decisions. Always follow official announcements on NEPSE, SEBON, and reliable finance portals like Sharesansar and Investopaper for accurate updates.
Sources:
- Sharesansar.com – Dividend FAQ and Bonus Calculation Guide
- SEBON – Official Guidelines and Company Announcements