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September 12, 2015

High Dividend Stocks as an Investment Strategy

Champion investors love dividend paying stocks. They love the feel of passive income and positive cashflow. What about you? Do you love the feeling of tax free dividend income making its way right into yourbank account while your stocks continue to do well?Investing in high dividend stocks is a great long term investment strategy, but it is always better tounderstand its pros and cons.Ready to invest? Then find out what are the best high dividend stocks to invest in...Read on..

What is Dividend?A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to aclass of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.Since it is shared from the company's cash reserves or profits, it generally indicates a healthy stock thatyou are holding.

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High Dividend Stocks as anInvestment StrategyChampion investors lovedividend paying stocks.They love the feel of

passive income and positive cash flow.What about you? Do you lo...

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Tax on DividendsDividends is a 100% tax free income in the hands of the shareholder. However, Dividend Distribution Tax(DDT) is usually paid by the company when they declare the dividends. As far as you, as an investor isconcerned., you are not liable to pay any taxes on dividends. Your dividend income is 100% exempt fromincome tax. Read more about DDT (Dividend Distribution Tax) by clicking here.

Div Yield Vs Dividend %As an investor, you should be usually focused on the Dividend Yield. Dividend Yield essentially tells youthe % return on your investment (at the current stock price). Do not get confused with the Dividend % thatthe companies usually declare - which can be higher than 100% also in some cases.As an example, if a stock's Face Value was Rs. 10 when it was introduced, maybe 10 years back, and nowthe stock price has reached Rs. 1,000/-, and the company declares 100% dividend, then this means adividend of Rs. 10/- per stock (100% of the face value of stock price). But if you have purchased the stockfor Rs. 1,000/-, your Dividend Yield would be only 1%. This is the actual Return on your investment, andthis is what matters for an investor. This also means that your Dividend Yield may vary depending on theprice at which you buy the stock. So, the yield could be different for 2 different investors buying the stockof a same company on two adjacent days.Read more about Dividend Yield here...

Stocks that offer high dividends in IndiaThere are thousands of companies paying high dividends, but you must be careful here. Investing for gooddividends should not be at the risk to your principle investment. You can see a list of most of the DividendPaying companies along with their track record of dividends at the below link:http://www.moneycontrol.com/stocks/marketstats/bsetopdiv/

To counter this risk, the most common investment strategy is to look for bluechip companies paying high dividends. Below is the list of the Top 30 Blue Chip companies in India thatpay high dividends:

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Merits of High Dividend Stocks

1. Dividend paying stocks are usually more stable. When stock market crashes, dividend stocks standstall. When everywhere there is panic, dividend stocks provides stability. People continue to hold onto dividend stocks even during market crash. The reason is simple, they continue to earn dividendseven during market crash. In fact, champion investors end up buying more when such stocks crashbecause they can lower the average cost of purchase and therefore increase the Dividend Yield.

2. If equity can generate regular income, there cannot be a better investment. And earning Dividendsis the best way to generate stable passive income. Once investors get hold of a good dividendstocks, they never sell them. This gives dividend paying stocks its price stability.

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Posted by Manoj Arora at 8:43 AM

Labels: Dividends, Equity, Passive Income, Stocks

stocks, they never sell them. This gives dividend paying stocks its price stability.

3. Value investors considers high dividend yield as a strong value indicator. Improving sales and profitfigures are one of the strongest fundamental indicators of quality stocks. Companies which sharesits profits consistently (dividends) are confident companies.

Demerits of High Dividend Stocks

1. Now, this is Catch 22. If a company is paying majority of its profits to its shareholders, it isobviously not keen on investing this profit for business expansion and further growth. Thissometimes limits the capital appreciation of your stock, since the growth of the company isconstrained.

2. Beware of companies with fluctuating dividends and weak fundamentals. These could be newplayers trying to attract investors.

3. Needless to say, Dividends cannot be the only criteria for you to buy a stock. The value analysis ofa stock is equally essential to buy it at the right price.

SummaryIf you are a champion investor and looking for long term regular passive income, High Dividend Yield BlueChip Stocks are your best bet. But if you are looking for high growth stocks, you better look out for valuestocks that re-invest their profits for growth. Personally, I favor the former.

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7 comments:

Venkatagiri Kulkarni September 12, 2015 at 3:14 PM

Nice article... Good one!

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Manoj Arora September 12, 2015 at 3:21 PM

Thanks Venkatagiri

Avadhut September 12, 2015 at 4:45 PM

Sir, thanks for the article.What % returns we should expect per year on an average in terms of capital appreciation?

Reply

Manoj Arora September 12, 2015 at 7:39 PM

Hi Avadhut Capital appreciation all depends on the price at which you buy and also your confident tokeep buying during dips and reducing your average purchase cost. Generally anywhere between 10 to 25 % CAGR had been my experience.

Cheers Manoj Arora

Manoj Arora September 12, 2015 at 7:39 PM

Hi Avadhut Capital appreciation all depends on the price at which you buy and also your confident tokeep buying during dips and reducing your average purchase cost. Generally anywhere between 10 to 25 % CAGR had been my experience.

Cheers Manoj Arora

Avadhut September 12, 2015 at 4:46 PM

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Sir, thanks for the article.What % returns we should expect per year on an average in terms of capital appreciation?

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Avadhut September 12, 2015 at 4:46 PM

Sir, thanks for the article.What % returns we should expect per year on an average in terms of capital appreciation?

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