Prajna Capital - An Investment Guide

Stock split is the process of splitting shares with high face value into shares of a lower face value. It’s like getting an Rs.20 note changed for two Rs.10 notes. The value changes of neither note nor splitted stock. Effect of stock split A stock split increases the number of shares in a public company. The price is adjusted such that the market capitalization of the company almost remains same. Why stock split is done? 1) Companies usually split their stock when they think the price of their stock exceeds the amount smaller investors would be willing to pay. “It is aimed at making the stock more affordable and liquid from retail investors’ point of view.” 2) Generally, there are more buyers and sellers of shares trading at Rs.100 than say, Rs.400, as retail shareholders may find low-price stocks to be better bargains. Stock splits are usually initiated after a huge run-up in the share. This run-up may be linked to the performance of the stock. 3) The company may declare such splits i...

Following a balanced approach to investing in equities, investors can recoup the amount invested in stocks in few years DIVIDEND IS a tax-free income in the hand of shareholders. However, Indian companies are known for not having a regular dividend paying policy. Nonetheless, dividends are far more profitable today than it would have been in the last four years. This is because the stock prices have crashed in last one year, as result the dividend yield (dividend per share divided by price per share) has gone up. Therefore, the dividend per rupee of investment is much more today than it was earlier. However, investors should not aim at accumulating stocks with high dividend yield because such high yields may not be sustainable in case profit falls due to economic slowdown. Consistent in paying dividends and in some cases have also increased the payout ratio. A high payout ratio means a higher percentage of profits are distributed among shareholders as dividends. The table shows the ...