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

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

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...

Compared to Bank FDs, Debt Mutual Funds are more Tax-Efficient

It is a security vis-a-vis returns battle between bank fixed deposits and debt funds In the past few months, banks have been consistently increasing their rates of interest on different fixed deposits. And after the Reserve Bank of India's Annual Monetary Policy, even the saving deposit rates are up at 4 per cent. For a six-month fixed deposit, you can easily get a rate of anywhere between 6 and 7 per cent annually. However, experts feel if one is looking to invest for less than a year, debt funds could make a better choice. The reason: Liquid funds and ultra short-term funds are giving annualised returns of 8 per cent. Financial advisors suggest retail investors opt for mutual fund schemes as they are more flexible and give higher post-tax returns. Opt for fixed deposits only if you are comfortable being locked-in for the tenure as a premature exit can attract a penalty. If your main aim is to ensure liquidity, debt funds are preferable. Though a fixed deposit gives you a...

Right Size your SIPs in terms of tenure and amount

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)    Systematic investment plans ( SIPs ) are here to stay. Going by the growing number of SIPs, it does look like investors have taken to them in a big way. Today as much as . 1,000 crore flow into SIPs every month. A SIP, as the name denotes, is a method to invest a fixed amount in a mutual fund at regular intervals --generally monthly or quarterly. It is easy to do and the minimum amount with most mutual funds is a mere . 1,000 per month. You can write post-dated cheques for your investment, or give an auto-debit facility from your bank account. In fact, most investors today prefer setting up an auto debit for their SIPs, since writing cheques is cumbersome. Also, you can choose any tenure that you want for your SIP — six months, one year, five years, 10 years or even opt for a perpetual SIP which will continue forever till you stop it....

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