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

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...

Use Mutual Fund SWPs for getting fixed payments

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Investors time withdrawals optimally to save on tax The systematic withdrawal plan, or SWP, could be called the lesser known cousin of the much talked about and publicised systematic investment plan (SIP). There's yet another cousin — the Systematic Transfer Plan ( STP ). In SIP, you invest a fixed sum of money at regular intervals (monthly/ quarterly) to buy some units of a mutual fund scheme. In SWP, as the name suggests, you do the opposite: You redeem some mutual fund units from your portfolio to get a fixed sum of money at regular intervals (monthly/quarterly/half year/yearly). In SIP, you get a higher numbers of units when the markets are down, and lesser in a buoyant market. In SWP, going by the product logic, you redeem higher number of units when the markets are do...
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