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

Retirement planning from a long-term perspective

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds     `HOW green was my valley'. This title comes from a movie I had watched many years ago. A little boy's journey into adulthood and the story of a Welsh valley's turn of-the-century descent from pristine paradise to despoiled coal mining.   I thought of the title because it is comparatively reflective of a person's life ­ the glorious years when he is earning and the sun down years when he is not having his regular job and, hence, his living standards comes down. The reason is a combination of things. Inflation of food items, transport, increase in health related costs in the later years of life and increase in expenses in almost all basic amenities of life. In India, the social security system is almost non-existent. In some states, wherever it is available, the scales of benefits are extremely modest...

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...

BANK FDs for Tax Saving

This is probably the easiest way to save tax if you have a Netbanking account . After the demonetisation and the digital push, almost everyone has one. A few clicks of the mouse and your tax planning is done. However, as mentioned earlier, this convenience comes at a very high cost. Interest rates have come down significantly and are close to 7-7.5% right now. The bigger problem is that the interest is fully taxable. It is added to the income of the investor and taxed at the marginal rate applicable to him. In the highest 30% tax bracket , the post-tax yield is close to 5%. Even so, tax-saving fixed deposits are suitable for risk averse investors, especially senior citizens who might already have hit the ` 15 lakh ceiling in the Senior Citizens' Saving Scheme and don't want to lock in money for the long term in a PPF account . Though NSCs offer higher rates than most banks, many senior citizens prefer to invest in deposits of their own banks, because they get better service ...

SBI Long Term Advantage Fund Series

Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax Saver Mutual Funds for 2017 - 2018 Best 10 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. ICICI Prudential Long Term Equity Fund 5. Birla Sun Life Tax Relief 96 6. Franklin India TaxShield  7. Reliance Tax Saver (ELSS) Fund 8. BNP Paribas Long Term Equity Fund 9. Axis Tax Saver Fund 10. Birla Sun Life Tax Plan Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave your comment with mail ID and we will answer them OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com OR Call us on 94 8300 8300  
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