You’ve already checked out the Dividend Aristocrats smallcase, which invests in companies with consistently increasing dividends!
This smallcase consists of companies from the Top 700 market cap stocks that have increased their dividend payout consecutively for the last 10 years. The smallcase has 80% allocation towards Large cap companies.
But it’s time to level up your investment portfolio
For long-term investors, dividend returns are very important as they are an additional income that is earned over and above the capital gains earned by holding onto the stock.
Stock returns consist of two parts- price return and dividend return. An investor can earn back a significant portion of the investment in the form of dividends, before selling the stock.
And that’s why, we bring to you Dividend Stars.
- This smallcase consists of companies that have maintained an average dividend yield of at least 2% over the previous 5 years
- Only the companies that have not cut dividends for the last 5 years are included
- The smallcase has 70% allocation towards Small cap & Mid cap companies
What’s the idea behind Dividend Stars?
The idea behind Dividend Stars smallcase was to give investors a convenient way to invest in companies that have not cut dividends in the past years and have a high dividend yield. Dividend yield refers to the amount of dividends a company is paying relative to its share price.
Let’s understand how we screen the stocks in this smallcase:
- Market cap of companies – All publicly traded companies on the National Stock Exchange of India, covering 90% market capitalization, are considered in the stock screening process. Since this smallcase incorporates stocks with at least 2% dividend yield, the portfolio tends to have a higher proportion of small-cap stocks as those are usually priced lower.
- Dividend growth – Since dividend yield is a function of current share price, it doesn’t capture the entire picture of dividend payouts over the years. That’s why in Dividend Stars smallcase, consistent growth in dividends is also an important criteria for stock selection.
- Dividend yield – Dividend Stars smallcase consists of companies that have maintained an average of at least 2% dividend yield in the past 5 years.
Who should invest in Dividend Stars?
Anyone who is looking for an extra cushion in the form of dividends can consider this smallcase.
In a nutshell, we can say that companies that provide regular dividend payouts and dividend growth tend to have a stable business model and endure economic cycles better.
Additionally, we understand that sometimes both unexpected external/internal factors can also affect the company’s ability to pay dividends. Hence, we evaluate the stocks in this smallcase annually to check if their dividend payouts are aligned to the criteria that we have laid out above.
However, investors need to consider the fact that pure equity smallcases with a concentration of mid and smallcap stocks has a significant risk in the short term and is only suitable for long-term investors with a higher risk appetite.
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Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. 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 using such independent advisors as they believe necessary.
Windmill Capital Team
Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. For more information and disclosures, visit our disclosures page here –https://windmillcapital.smallcase.com/#disclosures