A company wants extra money to scale and grow its business. This is why it invites investors to invest in it. As a reward for the investment, it pays investors a yearly dividend. We have covered everything about fiscal years, yearly dividends, cash dividends, and bonus shares in this article. The following article will revolve around the stepwise dividend payment procedure in Nepal.
In this article, you will know about the dividend distribution process from start to finish.
But first, let me address a few common questions:
How is cash dividend calculated in Nepal?
If a company has declared a 3% cash dividend, the actual dividend amount in rupees is calculated based on the par value of the stock.
Note that the par value of a stock is different from its market price.
This is what confuses people while calculating the cash dividend amount.
The market price or LTP is the price at which the stock was most recently traded in the secondary market.
Meanwhile, the par value of a stock is the price at which the company’s IPO was issued to the general public.
Most companies listed in NEPSE have a par value of Rs. 100. Meanwhile, the par value for Soaltee Hotel Limited (SHL) is Rs. 10.
In this example, we will consider a stock with a par value of Rs. 100.
Let’s suppose a company declares a 3% cash dividend for a fiscal year. Its stock is trading in NEPSE at Rs. 537 per share.
However, once we know the par value of the stock, the market price is irrelevant.
If the par value is Rs. 100, a shareholder will get Rs. 3 cash dividend per share for a 3% cash dividend declaration.
Thus, if he owns 20 shares of the company, he will have Rs. 60 paid as a cash dividend.
How to collect my cash dividend in Nepal?
If you are somebody who uses the Meroshare app and TMS portal to invest in NEPSE, your cash dividend will be automatically deposited to your bank account.
This is because you’ll have already authenticated your bank account while in the process of registering your Demat account.
Meanwhile, some shareholders who invested many years ago still hold physical share certificates. In their case, they will have to contact the company’s respective share registrar.
The share registrar will then dematerialize your shares and carry out the procedures to deposit your cash dividend.
To check if you have authenticated your bank account with the Demat account, log into the Meroshare app/ website.
Click on the “More” button, denoted by three parallel horizontal bars.
Click on “My Bank Request.”
For most people, this section will show you the default bank account linked with your Demat account. This is where you’ll receive your cash dividend.
This page is also where you can change the default bank account to receive any future cash dividends.
1) First step in Dividend Payment Procedure in Nepal: A Company Proposes the Dividend
Based on the profit gained for that particular fiscal year, the dividend distribution authority is in the hands of the board of directors. A board of directors (BoD) is an elected group of individuals that represent shareholders. The board is a governing body that typically meets at regular intervals to set policies for corporate management and oversight.
A public company should be accountable to the public. After the BOD decides on the dividend, the official website of NEPSE publishes a notice on the next day. This notice includes the total amount of dividend proposed, and the portion that will be distributed as a cash dividend, and the portion that will be distributed in bonus shares.
Dividend news tends to disrupt the normal supply-demand mechanism of stocks trading in NEPSE. Generally, if a company distributed a higher dividend than last time, its stock price sees a noticeable spike. I assume this is common for any stock exchange in the world.
Personally, I tend to avoid acting on dividend news. If you act on information everybody else has, you will get returns that everybody else will, which is, not much.
2) A Company Declares Book Closure and Calls AGM to Endorse the Dividend
The book closure date is simply the date on which the company closes its books for the dividend. This means that investors who buy and hold the shares of the company till the book closure date are eligible to claim the dividend distributed for the company. If a company has proposed a 20% dividend and its book closure date is tomorrow, you can buy the shares today and still get the dividend.
Note that the company declares the book closure date after it proposes its dividend. This is why you have enough time to buy the shares after a company unveils its dividend proposal for the first time. The book closure date is the same for the dividend and the AGM. Thus, investors maintained till the book closure date are entitled to the dividend and can also attend the company’s upcoming AGM.
In an AGM, the company endorses the dividend, discusses its yearly performance, and endorses any other special agenda if there is one.
A common question I get is, what will happen if I sell the shares the next day after the book closure date? You can sell the shares after the book closure date whenever you like and you will still get the dividend. Do you get me? Read it again if you did not.
3) The Regulatory Agency Approves the Dividend
A company just can’t decide on the dividend on its own. There are rules, you know. For banks and financial institutions, the dividend proposal has to be approved by the central bank, i.e. the Nepal Rastra Bank. For insurance companies, the Beema Samiti has the final say on the dividend. News portals covering the Nepalese share market often publish news about the regulatory agencies instructing the companies to revise their dividend.
Nonetheless, the regulatory agencies approve dividend proposals of most companies without any changes. Only then can a company endorse the dividend in its AGM.
4) AGM Endorses the Dividend
A company organizes its AGM shortly after the book closure date. However, this endorsement process is mostly a mere formality. There is no higher authority than the board of directors in a company that can say otherwise.
5) Company Requests Investors to Dematerialize Their Shares
After the company endorses the dividend in its AGM, it publishes a notice after a few days. The company requests its investors to dematerialize their shares from the notice. This is a request to investors who bought physical shares in the past. For us investors who buy and sell shares online, the shares are already dematerialized.
During the dividend payment procedure in Nepal, investors should authorize their bank details. Authorization of bank details should be done on their Demat account to get the dividend. Meanwhile, investors who still hold physical shares of the company should dematerialize their shares to claim their dividend. Furthermore, some investors take a loan against the shares of the companies before the book closure date. They should present a No Objection Letter from their lending institution in order to receive the dividend.
6) NEPSE lists the bonus shares
At about the same time, slightly early or slightly late, NEPSE publishes another notice stating that it has listed the bonus shares.
If you are wondering how long the bonus shares take to be listed in NEPSE, you will get your answer in this article.
7) Company Deposits Cash Dividend to Bank Accounts
The company deposits the cash dividend in bank accounts by the time it requests its investors to dematerialize its shares. In a few cases, the company distributes its cash dividend after a few days of the notice.
8) Dividend Payment Procedure in Nepal Final Step: Bonus Shares are Distributed to Demat Accounts
Finally, the company deposits the bonus shares in the Demat accounts of investors. Given that the bonus shares are already listed in NEPSE, investors can trade these shares from the very next day after the shares are deposited in their Demat accounts.
How cash dividend is calculated in Nepal
In theory, cash dividend distribution sounds simple. Basically, the company is distributing a portion of its profit in pure cash. You invest in the company (buy its shares) for a profit. There is no other reason. People enter the stock market to make money.
So, if a company in NEPSE you invest in makes a good profit, you definitely expect a portion of this profit. The company rewards you for investing in them by giving you some of its profit as cash.
So, let us say a listed company in Nepal has a stock price of Rs. 500 and it distributes a 50% cash dividend.
Then, in basic maths, you should get Rs. 250 extra cash as a cash dividend, right?
This is why cash dividend distribution sounds simple but it isn’t. This is also what confuses most beginners in the stock market.
A cash dividend is not distributed on the stock price of a company.
It is actually distributed in the par value.
Remember that you paid Rs. 100 per share for companies in an IPO? That is the par value of the company.
Most companies in NEPSE have a par value of Rs. 100 per share.
Cash Dividend Payment Example in Nepal Stock Exchange
Excel Development Bank Limited (EDBL) has proposed an 8.95% dividend for the fiscal year 2077/78. According to the company, 8.5% bonus shares and 0.45% cash dividends will be distributed.
During the dividend announcement, EDBL had a stock price of Rs. 360.
But the 0.45% cash dividend will not be distributed on Rs. 360 for a single stock. Rather, it will be distributed from the par value of Rs. 100 per stock.
So, if you own 100 shares of EDBL till the book closure date, you will be paid Rs. 45.
Note: Since the dividend amount is too small for EDBL, it will be used to pay the tax amount for the bonus shares instead.
Hence, you may not see this amount get deposited into your bank account at all.
How to collect cash dividends in Nepal
Collecting a cash dividend on Nepal Stock Exchange (NEPSE) is pretty easy.
If you are reading this article, it is likely that you have a Demat account.
A Demat account allows you to digitally store your shares without holding a physical share certificate.
It is also very likely that you had to input your Bank Account number while creating a Demat account.
This is where you receive your cash dividend.
To summarize: The company distributes the cash dividend straight to your authenticated bank account.
Meanwhile, if you still own physical share certificates and the company distributes a dividend, you will have to go to the company’s share registrar and dematerialize the shares to receive the cash dividend.
How to receive cash dividends in a different bank account in Nepal (NEPSE)?
You have authenticated a bank account in your Demat account.
However, you may want to receive the cash dividend in a different bank account for whatever reason.
The Meroshare app allows you to do so.
Just to keep you on the same page, a Meroshare app is where you apply for IPOs online.
It is very likely that you’ve created the app account while creating your Demat account.
To change the bank account for cash dividend, simply log into the app first.
Then, you will see the “More” button with a 3 horizontal dash icon.
Click on it, and you shall see another menu popup.
Now click on “My Bank Request.”
This is where you make the request to receive the cash dividend on a different bank account.
How to claim bonus shares in Nepal?
If you have a Demat account:
After a company proposes its dividend, it declares a book closure date.
You simply have to hold (not sell) the shares till the book closure date to be eligible for the bonus shares.
The company then automatically deposits the bonus shares on your Demat account.
Bonus shares being deposited to Demat accounts is the last step of the dividend distribution procedure (explained in the article above).
It generally takes a month or two from the book closure date for bonus shares to be listed in NEPSE.
The bonus shares are then deposited to Demat accounts shortly thereafter.
One additional thing: Some companies propose a small amount of cash dividend themselves to pay for the tax on bonus shares. In this case, everything happens on the backend and you just receive the dividend.
However, some companies do not propose a cash dividend. In this case, you have to manually pay the tax in order to receive the bonus shares.
If you do not have a Demat account:
It looks like you still own physical share certificates of the company.
In this case, you will have to visit the company’s share registrar’s office and dematerialize your shares to get the dividend.
You will have to present the share certificate along with a proof of your (the shareholder’s) identity.