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Showing posts with label Dividends. Show all posts
Showing posts with label Dividends. Show all posts

Monday, October 22, 2012

12 High Dividend Yield Stocks of 2012

High Dividend Yield Stocks offer Value Investing

As we all know that High Dividend Yield Stocks can be consider as a safe haven where safety has greater priority compared to high returns. Specially, when the market remains volatile and lot of uncertainity arises due to headwinds coming from domestic and global factors. Investors can still get a decent return on the Investment made in High Dividend Yield Stocks. Investing in a such kind of High Dividend paying companies is also one of Value Investing Strategy.

Value Investors look at the Intrinstic Value of a firm. They hold stocks for long term and look to gain from dividends, capital appreciation, buybacks, bonus issues etc. One of the indicators of a firm’s value to the shareholders is its dividend yield.

Dividend

A sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves). Dividends are mostly paid quartely or annually.

Why is dividend important?

Dividend is a direct income for a shareholder without selling any of the holdings. Therefore a shareholder can hold on to the stock and still earn an income sitting at home. In a bull market, dividend would add to the overall capital appreciation and improve gains. In a bear market, a high dividend stock can offset some of the capital loss. Hence, a high dividend stock would always find favor in any market conditions. Rising dividends also indicate financial soundness of a firm and a strong cash flow.

Dividend Yield

Dividend yield gives the income earned from stock holding from dividends alone. It is calculated on the basis of the dividend paid per share and the current market price per share.

Dividend Yield = (Dividend per share/CMP) x 100

For example, HCL Info’s dividend yield is given by:

Dividend Yield = (8/43.45) x 100 = 28.41%

This implies, if the earnings and dividend payout ratio remains the same for this financial year, if an investor purchases shares of HCL Info at current market price, he/she would earn a return of 20% from dividends alone.

Criteria for Selection of High Dividend Yield Stocks

We have taken S&P CNX 500 as a banchmark for Stock selection. We have qualify the companies from CNX 500 which is giving regular Dividends since last 5 years with Current Dividend Yield of 4.00%. We have also considered the valuation of selected companies such as Low P/E ratio with cheaper than Industry along with Price to Book Value less than 2. Below is the list of 12 qualified companies as per the mention criteria.

(click on the image if not visible properly)

Here are the 4 major reasons why dividend-paying stocks tend to fall less during volatile markets:

1. The Quality of Earnings is Higher

It’s hard to fake cash. When shareholders get checks in the mail, there is at least some proof that the earnings aren’t just accounting magic. This makes people more comfortable holding the stocks during uncertain times because they know there is some value there.

2. Dividend paying stocks generate current income

In depressions, recessions, or bear markets, many people may find themselves unemployed or earning less than they did during boom years. During times like this, you don’t want to part with something that consistently brings in funds for your family to use to buy groceries and gas unless you must. Typically, the shares of high growing, low payout stocks are the first, and hardest, to fall because you can’t use them to keep the power bill paid.

3. These stocks become “yield supported”

As share price falls, dividend yield gets higher (the cash dividend divided by the share price is known as “dividend yield”). Imagine if a Rs. 200 stock paid a Rs. 10 annual cash dividend. That’s a 5% return, which you would compare to all kinds of other available options such as money market accounts, bonds, etc. If the stock fell to Rs. 100 per share, the yield would suddenly be 10%. The stock would become more attractive and people or companies that did have excess funds, such as insurance groups or international corporations not damaged by domestic problems, are lured in by the relatively higher returns they can earn. If a company is healthy, in a world of 5% interest rates, it’s highly unlikely that it’s going to have a dividend yield of 15% or 20% because someone, somewhere, with a whole lot of cash is going to step into the situation.

4. Management doesn’t have as much capital to allocate

Human nature being what it is, it’s often normal for executives to want to go on an empire-building spree, even if it means earning less attractive returns than their shareholders could if the money was put back into their hands. An established dividend policy solves a big part of this problem by limiting the funds that are available for overpriced acquisitions. 

Thursday, October 18, 2012

Investing in Dividend Yield Stocks in Bear Market

Why stocks that pay dividends tend to fall far less than their non-dividend paying counterparts? For many investors, this is a major part of the appeal as they can’t stomach huge drops or volatility. Of course, stocks are always going to be riskier than most other asset classes. On the whole, dividend paying stocks tend to display far more consistency that other enterprises.

Here are the four major reasons why dividend-paying stocks tend to fall less during bear markets:

1. The Quality of Earnings is Higher.

It’s hard to fake cash. When shareholders get checks in the mail, there is at least some proof that the earnings aren’t just accounting magic. This makes people more comfortable holding the stocks during uncertain times because they know there is some value there.

2. Dividend paying stocks generate current income.

In depressions, recessions, or bear markets, many people may find themselves unemployed or earning less than they did during boom years. During times like this, you don’t want to part with something that consistently brings in funds for your family to use to buy groceries and gas unless you must. Typically, the shares of high growing, low payout stocks are the first, and hardest, to fall because you can’t use them to keep the power bill paid.

3. These stocks become “yield supported”.

As share price falls, dividend yield gets higher (the cash dividend divided by the share price is known as “dividend yield”). Imagine if a Rs. 200 stock paid a Rs. 10 annual cash dividend. That is a 5% return, which you would compare to all kinds of other available options such as money market accounts, bonds, etc. If the stock fell to Rs. 100 per share, the yield would suddenly be 10%. The stock would become more attractive and people or companies that did have excess funds, such as insurance groups or international corporations not damaged by domestic problems, are lured in by the relatively higher returns they can earn. If a company is healthy, in a world of 5% interest rates, it’s highly unlikely that it’s going to have a dividend yield of 15% or 20% because someone, somewhere, with a whole lot of cash is going to step into the situation.

4. Management doesn’t have as much capital to allocate.

Human nature being what it is, it’s often normal for executives to want to go on an empire-building spree, even if it means earning less attractive returns than their shareholders could if the money was put back into their hands. An established dividend policy solves a big part of this problem by limiting the funds that are available for stupid, overpriced acquisitions.

Hence, its always advisable to keep major allocation of your portfolio in high dividend yield companies during bear phase, you usually get better returns in terms of dividend yield.

Tuesday, November 1, 2011

Invest in Dividend Yield Stocks instead of Bank FDs

What is Dividend Yield?

Dividend yield is the ratio of dividend per share (in Rupees) and the market price of the share. It is expressed in percentage, just like the yields on fixed deposits (FDs).

Dividend Yield = ( Dividend Per Share / Market Price ) * 100

For example, if the dividend per share is Rs. 10, and the market price of the share is Rs. 400,

Dividend Yield = (10 / 400) * 100 = 2.5%

Now, if the dividend is fairly consistent, a parallel can be drawn to banks FDs.

Isn’t it similar to investing Rs. 400 in an FD, with the interest rate being 2.5%?

On the face of it, yes. But remember, the interest received on bank FDs is fully taxable in the hands of the investor, while dividend is tax free. Thus, in effect, it is equivalent to investing Rs. 400 in an FD, with the interest rate being 3.57% for an investor in the highest tax bracket.

What kind of companies to invest in?

One & only condition – the dividend should be fairly consistent. Only then, a conservative investor can utilize this strategy in place of investing in FDs.

So, we need to look for companies that have a record of consistent dividend payments. And the best part is there are many good companies that pay regular dividends.

In general, companies in high growth industries, like Telecom or Information Technology, plow back most of their profits to fuel their growth. So, they usually don’t declare attractive periodic dividends.

But companies that are in mature industries and are the leaders in their fields usually have lesser need to reinvest their profits. These are the companies that declare handsome dividend, time after time. And these are the companies you should invest in to implement the strategy of dividend yield.

Advantages of the Dividend Yield Strategy

There are two big advantages of the dividend yield strategy:

1. Capital Growth:

Since you invest in stocks as a part of this strategy, naturally, you also reap all the benefits of investment in stocks. And the biggest advantage is Capital Growth.

This means that the dividend you receive gives you a fairly regular income, and the capital growth (in the form of an increase in the stock price) keeps you ahead of inflation.

2. Dividend Yield increases over time:

The calculation of dividend yield uses the market price of the stock. Thus, in our example, dividend yield was 2.5%. Now, since you are a long term investor, you buy a stock and hold 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.

In that case, what is the yield for you? Let’s stick to our example – the market price is Rs. 400, and the dividend per share is Rs. 10. Also, due to increase in the stock price over time and due to stock split and bonus, your cost per share is Rs. 200.

In this case, although the dividend yield is 2.5%, the yield for you is:

Yield = (Rs. 10 / Rs. 200) * 100 = 5%
And this is equivalent to an FD with the rate of interest of 7.14%.

Isn’t this great? This means that the dividend yield strategy give you not just regular income and capital growth, but also an increase in the regular income over time!

What about Taxes?

As discussed earlier, the interest received on bank Fixed Deposits (FDs) is fully taxable in the hands of the investor, while dividend received is tax free. Thus, the effective yield for an investor in the highest tax bracket is even better.

Effective Yield = Dividend Yield / (1 – Your tax rate / 100)

Thus, for people in the highest tax bracket,

Effective Yield = Dividend Yield / (1 – 30 / 100),

E.Y = Dividend Yield / (1 – 0.3)

E.Y = Dividend Yield / 0.7

One very important point to note is that dividend is tax free only for long term investors. If you buy a share and sell it after receiving the dividend, it is called Dividend Skimming. Dividend received in this case is fully taxable in your hands.

Suggested Reading:

Monday, January 17, 2011

Dividend Yield Helps You Compare Buying Opportunities

Dividend yield (also called stock's yield) can help you compare two or more investing opportunities by applying a common measurement.

You can calculate a stock's dividend yield by dividing the company's dividend (the annual amount, not individual payments) by the current market price.

This tool gives you a snapshot of how several companies compare at a given moment. Since it uses the current market price, the value changes every time the stock's price does. This is important because if you are looking at two stocks, one rising and one falling, the numbers will change. The lower the stock's price, the higher the yield will be and, conversely, the higher the price, the lower the yield.

There are a couple of things to remember about a stock's dividend yield.

First, this is not a "silver bullet" metric, meaning don't base an investment decision on this factor alone. One obvious problem with a stock's yield is that the lower the price falls the higher the yield appears (assuming the dividend remains unchanged).

At some point, the company could become worthless or sink so low (because of other fundamental flaws) that it won't recover any time soon, if at all. Some time before that happens, the company will undoubtedly reduce or eliminate its dividend.

Second, once you buy the stock, you lock in the yield at the purchase price and you continue to receive that yield until you sell the stock. In the meantime, the stock's price can rise and fall changing the yield for future investors.

For example, if you buy a stock with a Rs. 3 annual dividend for Rs. 35 per share, your yield is about 8.6%. As long as the dividend remains the same, this is what your stock yield will be. It makes no difference what the stock's price does.

Use the dividend yield to compare two or more stocks, but don't rely on it as the sole factor in deciding which stock to buy.

Monday, October 25, 2010

Choose Dividend Yield Stocks Instead of Banks FDs

What is Dividend Yield?
 
Dividend yield is the ratio of dividend per share (in Rupees) and the market price of the share. It is expressed in percentage, just like the yields on fixed deposits (FDs).
 
Dividend Yield = ( Dividend Per Share / Market Price ) * 100
 
For example, if the dividend per share is Rs. 10, and the market price of the share is Rs. 400,
 
Dividend Yield = (10 / 400) * 100 = 2.5%
 
Now, if the dividend is fairly consistent, a parallel can be drawn to banks FDs.

Isn’t it similar to investing Rs. 400 in an FD, with the interest rate being 2.5%?
 
On the face of it, yes. But remember, the interest received on bank FDs is fully taxable in the hands of the investor, while dividend is tax free. Thus, in effect, it is equivalent to investing Rs. 400 in an FD, with the interest rate being 3.57% for an investor in the highest tax bracket.
 
What kind of companies to invest in?
 
One & only condition – the dividend should be fairly consistent. Only then, a conservative investor can utilize this strategy in place of investing in FDs.
 
So, we need to look for companies that have a record of consistent dividend payments. And the best part is there are many good companies that pay regular dividends.
 
In general, companies in high growth industries, like Telecom or Information Technology, plow back most of their profits to fuel their growth. So, they usually don’t declare attractive periodic dividends.
 
But companies that are in mature industries and are the leaders in their fields usually have lesser need to reinvest their profits. These are the companies that declare handsome dividend, time after time. And these are the companies you should invest in to implement the strategy of dividend yield.
 
Advantages of the Dividend Yield Strategy
 
There are two big advantages of the dividend yield strategy:
 
1. Capital Growth:

Since you invest in stocks as a part of this strategy, naturally, you also reap all the benefits of investment in stocks. And the biggest advantage is Capital Growth.
 
This means that the dividend you receive gives you a fairly regular income, and the capital growth (in the form of an increase in the stock price) keeps you ahead of inflation.
 
2. Dividend Yield increases over time:

The calculation of dividend yield uses the market price of the stock. Thus, in our example, dividend yield was 2.5%.
 
Now, since you are a long term investor, you buy a stock and hold 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.
 
In that case, what is the yield for you? Let’s stick to our example – the market price is Rs. 400, and the dividend per share is Rs. 10. Also, due to increase in the stock price over time and due to stock split and bonus, your cost per share is Rs. 200.
 
In this case, although the dividend yield is 2.5%, the yield for you is:
 
Yield = (Rs. 10 / Rs. 200) * 100 = 5%
 
And this is equivalent to an FD with the rate of interest of 7.14%.
 
Isn’t this great? This means that the dividend yield strategy give you not just regular income and capital growth, but also an increase in the regular income over time!
 
What about Taxes?
 
As discussed earlier, the interest received on bank Fixed Deposits (FDs) is fully taxable in the hands of the investor, while dividend received is tax free. Thus, the effective yield for an investor in the highest tax bracket is even better.
 
Effective Yield = Dividend Yield / (1 – Your tax rate / 100)
 
Thus, for people in the highest tax bracket,
 
Effective Yield = Dividend Yield / (1 – 30 / 100),
 
E.Y = Dividend Yield / (1 – 0.3)
 
E.Y = Dividend Yield / 0.7
 
One very important point to note is that dividend is tax free only for long term investors. If you buy a share and sell it after receiving the dividend, it is called Dividend Skimming. Dividend received in this case is fully taxable in your hands.

Suggested Reading:

Wednesday, October 20, 2010

Pharma MNC Merck Announces Results - Dividend Yield @ 10.5%

German pharma major Merck's shares rose nearly 20% hitting upper circuit during the trade on 20 Oct 2010. Merck touched a 52-week high of Rs 909.50 on the BSE. after it gained 19.99% or Rs 151.55 to close at Rs 909.50. There were pending buy orders of 13,827 shares, with no sellers available. The total traded volumes were 406,738 shares.

Merck hit the upper circuit of 20% after the board of directors of the company declared an interim dividend of a massive Rs. 95 per share for the year ending December 2010.

The board declared the huge interim dividend along with the company's Q3 September 2010 results during trading hours on 20 October 2010.

However, the company's second quarter results disappointed the street. Merck's net profit for the quarter was down 5.75% to Rs 24.7 crore from Rs 26.2 crore last year. Its net sales rose 20% to touch Rs 156 crore this quarter versus Rs 130 crore last year.

The company's trailing 12-month (TTM) EPS was at Rs 47.47 per share. (Jun, 2010). The stock's price-to-earnings (P/E) ratio was 19.13. The latest book value of the company is Rs 281.51 per share.

The company has an equity capital of Rs. 16.86 crore. Face value per share is Rs. 10.

The dividend yield based on the current market price of Rs. 909, works out to 10.5%. As per the existing tax laws, dividend is tax-free in shareholders' hands whereas a company pays a dividend distribution tax.

Thursday, August 12, 2010

Making Money with Dividends

One of the ways you make money with stocks is by investing in companies that pay dividends.

Dividends are profits the company distributes to shareholders. The companies don’t do this out of the kindness of their hearts – this is what a company is all about; making money for the owners.

Dividends usually don’t represent all of a company’s profits. The company retains some portion for future use - in acquisitions or to retire debt, for example.

Most companies pay dividends in the form of cash, although you may hear of occasions when a company uses stock instead. Many investors are attracted to stocks with a good history of paying dividends. These companies are usually well established and profitable, but may not offer much in the way of growth potential.

The company’s board of directors sets the dividend at a quarterly meeting. It is important to note that they are under no obligation to pay a dividend. If the company is hurting financially or the board is concerned about future prospects, it can forego the dividend.

The board sets the dividend rate at a per share basis. For example, the board may declare a quarterly dividend of Rs 0.50 per share. This means if you own 100 shares of stock, you will get a check for Rs.50 for that quarter.

Important Dates

There are four important dates to remember about dividends:

• The Declaration Date: This is the date the board sets the dividend and announces when the stockholders will get their checks. The board also announces the Ex-Dividend Date, which is a very important date to know.

• Record Date: This is the date when the company sets the list of shareholders to receive the dividend. You must own the stock before this date to get the dividend; however, it is the Ex-Dividend Date that is more important.

Ex-Dividend Date: This date usually falls 2 – 4 days before the Record Date. This date allows for the completion of all pending transactions, since it usually takes three days to settle a regular stock sale. The Ex-Dividend Date is the most important date as far as owning the stock if you want to receive the dividend.

• Payment Date: This is the date the company mails the checks, often two weeks or so after the record date.

On the Ex-Dividend Date, the market discounts stock’s price since the dividend is no longer available to buyers.

Types of Dividends

Dividends come is two types: fixed and variable. Dividends that pay at a fixed rate go to owners of preferred stock, while variable dividends go to common stock holders.

Suggested Reading:


Tuesday, June 22, 2010

Investing in Stocks for Regular Income & Long Term Growth

Stocks offer the potential for regular income and long-term growth

One of the major benefits of owning stocks is their ability to produce regular income (dividends payment) and long-term growth.

The challenges of the 2008-09 financial crisis put a strain on some companies to reduce or eliminate dividends, but for strong companies, this is just temporary.

When the economy rebounds, some companies will be in better financial condition than others. Mature companies with established markets may be in an enviable financial position.

As is often the case, companies providing products or services to businesses may experience rapid growth. Companies that have curtailed spending during the economic crisis will play catch-up, scrambling to capture market share or protect what they still have.

As we work through a recovery, market-leading companies will become cash cows, throwing off extra income in the form of dividends and stock buybacks. It is safe to assume that investors are going to be more wary of risk in the future. Companies with a consistent record of dividend payment and growth will command a premium in the market.

It is almost certain that either through regulation or shareholder action, executive compensation and bonuses will come under close scrutiny. Stocks that return more profits to shareholders may be viewed in a more favorable light by regulators and shareholders. Don’t be surprised if regulators encourage dividends through tax policies.

For investors, the combination of regular income and long-term growth makes stocks a wise choice for those with a long time frame. While there is still be much emphasis on quarterly profits, the investing community is likely to take a closer look at companies that have a longer term approach to growing the business.

With the right stocks in your portfolio, it is hard to beat the potential of current income and long-term growth.

Tuesday, June 8, 2010

5 Advantages of Investing in Dividend paying Stocks

Dividends can provide significant advantages to investors that become even more prominent during bear markets. Here's why:

1. Dividends offer ongoing returns year in and year out.
This is a key advantage over non-dividend-paying stocks. This cash return is received even during down or flat markets. Shareholders can use this cash payment any way they want — reinvest it in additional shares (perhaps the most appealing option considering the potential for significant future returns), apply it toward a different investment, save it or spend it.

2. Dividend yields increase during bear markets.
The recent market pullback has provided dividend yields not seen for several years, which are very attractive compared to current interest rates. The compounding effect of even a couple percentage points will have material impact on total return over the long haul.

3. Dividends can provide a cushion in down markets.
A dependable dividend provides support for a stock because, no matter what is happening in the stock market, investors will eventually jump in to buy if the yield is attractive enough. So in market corrections, demand for consistent dividend payers increases as investors move toward safety, while demand for speculative stocks usually decreases. This price support, coupled with the cash return the dividend provides, can soften the impact of market downturns.

4. Dividend reinvestment while stock prices are depressed can enhance returns during market recoveries.
While it might not seem like it right now, both the market and the economy will eventually recover and grow again. When stock prices are depressed, cash dividends can be reinvested into a greater number of shares, which can create a dollar-cost-averaging effect. This can materially enhance returns during market recoveries.

5. Dividends can grow. Historically, many companies have increased their dividend payments over time.
In fact, several companies have increased dividends to shareholders for 15 or more consecutive years. This is one of the main differences between stocks and fixed-income investments, such as bonds, and a key benefit when economic conditions improve. As a result, stocks are not as impacted by changes in interest rates and can act as a hedge against inflation.

With today's low interest rates on cash investments and reduced returns on other asset classes; it's easy to see why many investors are turning to dividend-paying stocks to provide them with attractive yield and capital gain potential. But it's also important to note that dividend-paying stocks are not the be-all and end-all of any investment strategy — every portfolio needs to include a variety of investment types to help reduce exposure to risk.