Skip to main content

Dividend yield helps pick stocks

    Dividend and dividend yield, although related, is not one and the same. Dividend is the portion of profits that a company distributes among its shareholders in the form of cash. It is expressed per share or as a percentage of the share's face value. In case a company declares a 10-percent dividend on Rs 10 par value share, you will get an amount equal to the face value of the share multiplied by 10 percent - Re 1 - as dividend. In case the dividend is expressed in percentage terms, it is the percentage of the face value of the share.
   Nowadays, dividends are tax-free. The company pays dividend distribution tax before distributing dividends.


   Dividend yield is different. It is the ratio of dividend amount per share to the prevailing market price of the share. This is a yardstick to identify attractively-valued stocks. Normally, higher the dividend yield, more attractive is the stock for investors.


   The dividend yield indicates the percentage of an investor's purchase price of a stock that is repaid to him by way of dividends. Absolute amount of dividends do not count for this comparison. Many investors who want a regular income through dividends look for stocks which either maintain a steady or an upward trend of dividend declaration. They invest in scrips having a high dividend yield. Ideally, a low market price combined with high dividend payout gives a high dividend yields. Dividend yield is a simple tool for any investor to evaluate his investments in scrips and to choose the right portfolio depending on his priorities


   Before investing in a stock with a high dividend yield, you should check out the dividend paying history of the company in the past. Whether this is a regular dividend paying stock or is it just a onetime pay-out is significant.


   You should also be aware of the source of the dividend - whether it is paid out of a previous year's profits or out of profits earned from non-operating activities such as sale of assets etc. Investing on the basis of dividend yield is a popular practice in developed markets. Dividend yield can be a good tool to identify an undervalued stock that may offer good appreciation. You can invest in equity and equity-related instruments of companies focusing on dividend yields. An equity portfolio should have stocks that are available at attractive dividend yields.


   Under the Income Tax Act, dividend is tax-free. The company pays dividend distribution tax. In the hands of investors, this is a tax-free income. So the effective return for the investor will be more than the dividend yield - the exact yield will depend on the tax bracket of the investor. Thus, the effective yield for an investor in the highest tax bracket is even better.


   While investing and building a portfolio, you should look for companies that have a record of consistent dividend payments. Some companies follow a policy of progressive increase in dividends. These are even better investment options. However, they command a high premium in the market. Dividend gives a fairly regular income. Also, these companies demand decent premium in the stock markets. So, you can look at good capital appreciation as well.


   The calculation of dividend yield uses the market price of the stock. A long term investor buys a stock and holds it for a long term. During this time, the stock may undergo stock splits and bonuses. Also, the price of the stock goes up over time. This means that although the prevailing price of the share is high, your cost of acquisition of the stock could be fairly lower compared to the market price. Over a period, the cost per share would come down - for example, because of additional bonus shares issued. This increases the effective yield for investors.

 

Popular posts from this blog

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

Save Tax With Mutual Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...

How to manage Volatility in Debt Mutual Funds

Best Debt Funds Online   The debt mutual fund space is creating a lot of confusion among investors, especially the new ones. After a series of cuts in bank deposit rates and small savings, many new investors have started investing in debt mutual fund schemes. However, the complexity of the space is challenging most investors. Top mutual fund managers believe that these investors would fare well if they stick to an asset allocation plan in debt. The best strategy to avoid volatility in the debt space at this point is having an asset allocation Many investors are familiar with the concept of asset allocation. However, most of them do not associate it with debt investments. So, is there a formula? There should be three baskets in which you put your debt investments : short/ultra-short term funds, credit opportunities funds and bond funds . But, at this time, when the interest rates are not headed anywhere, it is good to stay away from long-term bond funds ...

Mirae Asset Ultra Short Term Bond Fund and Mirae Asset Tax Saver Fund

Mirae Asset Mutual Fund   has renamed   Mirae Asset Ultra Short Term Bond Fund , an open ended debt scheme, to   Mirae Asset Tax Saver Fund   with effect from October 18, 2016. Also, Mr. Sumit Agrawal, the co-fund manager of Mirae Asset India Opportunities Fund (MAIOF) and Mirae Asset Great Consumer Fund (MAGCF) ceases to be the fund manager with effect from October 1, 2016. Consequently, MAIOF shall now be solely managed by Mr . Neelesh Surana while MAGCF shall continue to be co-managed by Mr. Neelesh Surana and Ms. Bharti Sawant. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. ID...

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now