Divam Sharma, Co-Founder of Green Portfolio Private Limited (SEBI registration number: INH100008513) is a distinguished financial expert. We recently went into a conversation with him to discuss all things dividends and how they add value and sheen to your existing investments.
Here are some highlights from the conversation –
What are the Different Dividend Types & What is Their Impact?
- Types of dividends include regular, special, & asset class-specific dividends.
- Dividend consistency & history can impact stock price & a shareholder’s appetite to invest.
- Companies that pay dividends even during market crashes tend to be more resilient.
What are the Tax Implications of Dividend Income in India?
- Dividend income is taxed differently depending on whether shares are held for investment or trading purposes.
- A TDS of 10% or a flat 20% rate is charged on dividend income depending on the shareholder’s status.
How to Evaluate Companies with High-Dividend Payouts?
- Consistency and sustainability of dividend payouts are important.
- Investors should also look at financial performance, including revenue growth, profit margins, & return on equity.
How to Analyse a Company’s Dividend Payout History?
- Consistency: Has the company paid dividends consistently over a long period of time?
- Growth: Has the company increased its dividend payments over time? A history of increasing dividends is usually a positive sign for investors.
- Payout ratio: What percentage of the company’s earnings is being paid out as dividends? A very high payout ratio could indicate that the company is not reinvesting enough of its profits back into the business for growth.
- Yield: What is the current dividend yield, which calculates by dividing the annual dividend payment by the current stock price?
- Industry comparison: whether the company is an outlier or in line with its peers.
What are the Risks Associated with Investing in Companies with High Dividend Payouts?
- Sustainable dividend yields can only go so high, capital appreciation in the long term is essential.
- Companies that pay out most of their earnings as dividends may not be good investments.
- Investors should look for companies with high dividend paying stocks and capital appreciation potential.
Know more in detail about dividends; join in the conversation –
Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
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