Dividend Explained in Nepali. Cash Dividend vs Bonus Share. How to Pay Tax on Bonus Shares in Nepal?
what is dividend in the share market? cash vs bonus share which one is a better dividend in Nepal? share लाभांश के हो? Difference between the cash dividend and bonus share. Dividend is the return given to the shareholders from the profit earned by the company. If such dividend is paid in cash, it is called cash dividend and if it is paid in shares, it is called bonus share or stock dividend.
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Bonus Shares/Stock Dividend
Let's take an example from the table above. Womi Microfinance Company will be paying 30% stock dividend and no cash. So, if you have 100 shares of Womi, you are entitled to 30 additional shares free of cost.
Cash Dividend
Unilever Nepal has proposed 100% cash dividend. So, if you have 100 shares of UNL, you will receive 100% of its value i.e. Rs 10,000. Capital gains tax is deducted at source from this dividend.
What Are Stock Dividends (Bonus Shares)?
Stock Dividends, also called Bonus Shares, are dividends paid in the form of new shares. If you are an existing shareholder of the company, you are entitled for additional shares. Bonus shares are given when the company re-invests in itself and is looking for more growth. In case of Banks and Insurance companies, bonus shares are issued also when they have to meet a certain regulatory requirement. For example: reaching a certain paid-up capital requirement, maintaining a certain Capital Adequacy Ratio against risky assets etc.
How Are Bonus Shares Given?
Bonus shares are announced as percentage of paid-up capital. If a company announces 10% bonus shares, it means that it will issue 1 new share for every 10 paid-up shares of the company. So, if you have 100 shares of the company on its book closure day, the company will pay you 10 shares. Yes, for free! (minus capital gains tax).
Nepali Companies Give Either Stock Dividends or Cash
What Are Cash Dividends?
Cash Dividend is the simplest form of dividend payment. It's in the form of cash and is directly deposited to your bank account. They are also calculated on the same basis. If a company declares 10% cash dividend and you have 100 shares, you are entitled to get 10% of the value of those 100 shares.
Keep in mind that the value of those shares are paid-up value or par value. This is not the value of those shares as per the per share market price. Since the majority of shares in Nepal Stock Market have par value of Rs 100 per share, this is the dividend calculation:
Value of the shares: 100 shares x Rs 100 = Rs 10,000
Dividend = 10% of Rs 10,000 = Rs 1,000
Hence, the company will pay you Rs 1,000 (minus dividends tax)
Rs 100 is generally the IPO price of any company in Nepal stock market. For mutual funds and Soaltee Hotels (SHL), the par value is Rs 10 per share.
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