ITC Dividend for the year ending on 31st March 2020 stands at Rs. 10.15/- per ordinary share of the face value of Re. 1/-. What does this mean to a common retail Investor? In this article, we will clear up some terminology first. What is Ordinary Share? What does book closure mean? What is the Ex-Dividend Date?
We will clear all your queries regarding ITC Dividend declared during the coronavirus (COVID -19) pandemic lockdown of 2020.
Terminology Related to Dividend
There are a few terminologies we need to keep in mind when looking at dividends declared by a company. In our case, ITC Dividend.
What is Dividend?
In simple terms, a dividend is a way a company rewards their shareholder for Investing in that particular company.
You can look at dividends in a way as if the company you are investing in is sharing their profit with you. It is a kind of saying ‘Thank You’ in the business world.
A company can keep the Total Profit and in return the EPS or Earning Per Share would go up, indirectly benefiting the shareholders.
Big tech giants like Google, Amazon, etc, do not share their profit in the form of dividends with their shareholders. They keep it to themselves, and in return, the EPS of their shares rises, which influence the stock price to go north.
The reason those big tech giants do not payout dividends is that the technology industry is very R&D intensive, and needs a constant flow of investments. And those big companies think that it re-investing those profits within the company will generate a better return than handing out dividends to their shareholders.
But cash-rich companies like Apple, Costco, and our very own ITC payout dividends to their shareholders. Because they generate way too much cash to re-invest back into the business.
What is the Ex-Dividend Date?
Without going into deep details, we can simplify the term by saying that you need to buy the shares of that company one business day before the declared Ex-Dividend date.
In our case of ITC Dividend, the Ex-Dividend declared for the year 2020 was 6th July 2020. So if you would have wanted to receive those tokens of ‘Thank You’ then you should have bought ITC Shares within the 5th of July 2020.
What is the Book Closure Date?
It is the time period in which the company will not change anything in their Shareholder Record Book.
Shares change hand on a daily basis in a publicly-traded company, so to pay a dividend, a company need to fix a date to determine the rightful owner of the shares. That date is called the Book Closure Date.
ITC book closure date was from Wednesday 8th July 2020 till Thursday 9th July 2020.
What is the Face Value of a Share?
Face Value is the nominal value of a share stated by the issuer.
Let us make it a bit clear for you.
ITC stated that a single share of ITC is worth Re. 1/-. So, if you have bought an ITC Share for Rs. 200/- then you have paid 1 rupee as its Face Value and 199 rupees as Premium.
Face Value is very important for a stock as Stock Split and Dividend calculation depend on it.
What is Ordinary Share?
Ordinary Shares are normal shares with equal voting rights for all the shareholders.
There is something called Preference Share which comes with special rights for its owner.
For example –
During the Financial Crisis of 2008 – 2009, Warren Buffett rescued Bank of America with billions of dollars, in return he got Preference Shares of BofA, which earned him far more dividends than the Ordinary Shareholders.
ITC Dividend for 2020
The dividend announcement of ITC for the year ending on 31st March 2020 came as a boon to its shareholders. ITC declared a dividend of Rs. 10.15/- per share. This means for every share held, ITC shareholders will get Rs. 10.15/-, which is amazing looking at the current situation India is under.
A nationwide lockdown due to the Coronavirus has made many people jobless, and their saving account slowly depleting. At a time like this, such news is always cherished. And this dividend announcement has already cheered up the shareholder of ITC. If we look back to the financial year of 2018 – 2019, ITC declared dividends of Rs. 5.75 per share.
ITC adopted a new dividend distribution policy on the 18th of March 2020 where the company said it will redistribute 80 to 85 per cent of their PAT or Profit After Tax as dividends.
As you can see in the above picture ITC dividend payout for the year ending on 31st March 2020 was at 82% of the EPS or Earning Per Share which is in line with their dividend policy.
Understanding ITC Dividends and its Fundamentals
Though the EPS has been updated, the EPS or Earning Per Share of ITC stood around 12.45 INR while declaring dividends. EPS is important to understand because the dividend that will be paid to the shareholders will be deducted from the EPS only.
A company with negative EPS cannot afford to hand out dividends to their shareholders. If a company does payout dividends while having negative EPS, then it is an indication that the company is borrowing money to pay to its shareholder, and it is a major red flag. It is advised to stay away from such companies.
Next comes the Dividend Yield of ITC. Dividend Yield signifies what percentage of dividend you would or would have received if you would have bought your shares at the Current Market Price.
The share price of ITC as of the day of writing this article stands at Rs. 198.50/-. So the Dividend Yield is saying if you would have bought your shares at Rs. 198.50/- then the Dividend of Rs. 10.15/- is 5.11% of Rs. 198.50/-.
Simply multiply the LTP or the Last Traded Price of a share with the Dividend Yield Percentage.
In our case of ITC, it will be
Rs. 198.50 x 5.11% = Rs. 10.14/-
which is very close to the actual dividend declared by ITC.
Always remember Dividend Yield will change daily according to the Current Market Price CMP or LTP.
High Dividend Yield should also be a point of concern. Either the stock price has taken a huge beating which is why the Dividend Yield has become so much inflated or the company is paying an unsustainable amount of dividends which the company cannot keep up in the long term and there is no money left after the dividend payouts for the future growth of the company.
In the case of ITC, the company has both size and capital to pay a handsome part of its EPS as Dividends while keeping aside money for future growth. With the fantastic balance sheet of ITC, they can afford it.
Face Value as discussed earlier is the nominal value of each share set by ITC. It is mainly used for calculating how much dividend you will get.
The Dividend Percentage is used to convey to shareholders how much dividend has been declared in relation to the face value of the share. In the case of ITC is 1015%.
But what does that mean?
Well, it simply means you will get 1015% of the Face Value of ITC Shares which is Re. 1/- as dividends.
You can find out the exact amount you will receive as dividends by multiplying the Face Value of the share by the Dividend Percentage. In our case of ITC,
Re. 1 x 1015% = Rs. 10.15/-
Another term related to the dividend that is not mentioned in the above picture is DPS or Dividend Per Share.
As the name suggests, it tells you what exact amount of money will you receive as a Dividend for each share.
The Dividend Per Share or DPS of ITC for the year 2020 stands at Rs. 10.15/- Per Share.
How much money will I get from the dividend of ITC?
Well, it depends on how many shares you hold on your Demat account and to what date. As we know, the Ex-Dividend Date of ITC for the year ending on 31st March 2020 was 6th July 2020
So you will receive dividends of ITC on all the shares held till the 5th of July 2020. You will not receive any dividend on shares bought after 5th July 2020.
So if you had 10 shares of ITC then you will receive 10 x 10.15 = 101.50 INR, if you had 100 shares then you will receive 100 x 10.15 = 1015 INR, and so on and so forth.
When is the ITC dividend payment date?
As notified by ITC to the exchanges, declared dividends of ITC will be credited into your bank or Demat account on 8th September 2020. And ITC Dividend for the Year 2020 has been credited to the shareholder’s bank account on 8th September 2020. We hope this answers your question about when the ITC dividend will be credited in 2020.
Is ITC a good long term investment?
According to our research, ITC is a very good long term investment or even just a dividend-paying stock. For more than 10 consecutive years ITC has grown its Net Profit and EPS and maintained a healthy dividend payout ratio.
But there are far more things to consider before you can confidently invest in a stock. That is why we at Money Premier always advise our readers to do their research or get professional advice from a certified financial advisor. Investing in the stock market is not risk-free, and if done incorrectly, it can cause capital erosion.
To give you a perspective,
The Net Profit of ITC for the year 2020 stands at Rs. 15,300 Crores, whereas Hindustan Unilever, another FMCG giant, their Net Profit for the same year stands at Rs. 6,700 Crores, and Dabur India, a major herbal and ayurvedic FMCG player, their Net Profit stands at Rs. 1400 Crores for the year 2020. This should let you know how big ITC as an organization is.
If you have any more questions or queries do let us know in the comment section and we will try our level best to answer you.
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