Whenever one invests in the stock markets, there are two ways by which one can earn – a) share price appreciation b) dividends. Share price appreciation is simply the increase in share prices, while dividends is the additional income that an investor earns when the company decides to distribute part of its profits with the shareholders.
It is fairly intuitive to understand. Let’s say, you have invested in 100 shares of ABC Ltd at ₹10 per share. As a long-term investor, you decide to hold on to this investment for 1 year. So, after 12 months you see ABC Ltd. trading at ₹30 per share. Meaning, your investment value has gone up from ₹1000 (100 shares * ₹10/share) to ₹3000 (100 shares * ₹30/share). Is your total gain ₹2000? Actually not, it will be more and that is because of dividends. Assuming in this 12-month period, the company gave out a dividend of ₹1 per share, twice. Therefore you got an additional ₹200, as you were holding 100 shares. Therefore, your total gain is ₹2200. Not bad, right?
Before going any further, let’s understand the concept of dividend yield, a concept that we shall talk about going forward. It is a financial ratio (%) that tells you the amount of dividends a company is paying out relative to its share price. In the illustration used above (ABC Ltd.), the dividend yield is 6.67% [ ₹2 (Total Dividends)/ ₹30 (Share price)]. Point to note here is that dividend yield changes with change in share prices.
This piece aims to articulate the rationale behind our dividend smallcases and to provide insights into the way we manage them. While the underlying theme is the same across these smallcases, they all differ from each other in unique ways. At present we have 3 dividend smallcases in our offering – Dividend – Smart Beta, Dividend Stars, and Dividend Aristocrats.
We shall get to the specifics of these 3 smallcases, but let us take a look at the selection criteria of these smallcases to get a bird’s eye view –
By the looks of it, if you’re thinking that there is no material difference between the three smallcases, there is merit in mentioning that across these three smallcases only 2 companies are common – Infosys and ITC.
Now, you must be wondering how you should go about picking the suitable smallcase for yourself. That depends on your objective and expectation. Let’s take a look at these set of expectations:
All in all, these smallcases cater to various kinds of objectives and hopefully this piece helps in bringing you closer to understanding your investment objective and making the right decision for yourself.
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Disclaimer: The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice and nor to be construed as an offer to buy/sell or the solicitation of an offer to buy/sell any security or financial products. Users must make their own investment decisions based on their specific investment objective and financial position and use such independent advisors as they believe necessary. Refer to our disclosures page, here.
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