In this article, FinTuts will share its views or ideas about Dividend Investment Strategy in Stocks – October 2020, so that you can take a self-decision on your investment or wealth creation journey and can be financially literate and atmanirbhar.
For decades, money-minded investors always look for the best dividend stocks out there in the share market. They invest in the stock market with the aim of increasing their net worth by adopting various investing strategies such as capital appreciation & dividends.
Specifically, investors who choose to be Risk-Averse are more prone to invest in high dividend-yielding stocks. Therefore, Dividend Investment Strategy plays an important part in portfolio management. It is good for investors when they plan to invest for long-term purposes. Also, investors can reinvest to purchase more shares of the underlying stocks for compounding benefits or fulfill any personal needs from the payout.
Dividends are the portion of the profit that the company payouts to eligible shareholders who hold the shares as on the ex-date of the dividend.
Identify the Stocks with High Dividends
In FinTuts opinion, the main criteria to look for identifying great dividend stocks includes below majorly:-
- Dividend Yield
- Payout Ratio
- Cash Dividend Payout Ratio
- Total Return
- Earning Per Share
- Price-Earning Ratio
Dividend Yield vs Dividend Payout
Dividend Yield – shows how much dividend a company paid out in a year. It is expressed as a percentage of the current market price which gives you a sense of how much returns (in percentage) you have earned from your investment.
Formula of Dividend Yield: Annual dividend per share / Current share price
Dividend Payout – shows how much dividend has the company paid out from its net income. When a company earns profits, it either re-invests it back into the business or gives out dividends. Hence, it is the percentage of profits or earnings that it paid out as dividends. This is just another way to define the same concept.
Formula of Dividend Payout: Annual dividend per share / Net Income
Top 7 Best Dividend Paying Companies || October 2020
Please note that below stocks have been choosen by FinTuts considering its Market Cap, Dividend Payout Ratio, Dividend Yield, Price-Earning Ratio, EPS, Net Income, etc. of last 2 years.
- Vedanta Ltd.
- Indiabulls Housing Finance Ltd.
- Oil India Ltd.
- NLC India Ltd.
- Coal India Ltd.
- REC Ltd.
- PTC India Ltd.
Pros & Cons of Dividend Investment
Pros or advantages of dividend investing :-
- Dividends are a steady source of income for investors which helps in building wealth over a period of time.
- Dividend-paying stocks may carry low risk than non-dividend yielding stocks as the company’s payout of dividends is testimony to its belief in future earnings potential as well as business sustainability. Since large-cap companies issue dividends, they possess a strong market presence and mitigates risk factors. Hence, unfavorable fluctuations in the stock price during market volatility do not affect the company’s dividend-paying capacity.
Cons or disadvantages of dividend investing :-
- Capital gains cannot be made from dividend-paying stocks as they are announced by large companies that do not show fluctuations with high variations.
- Since paying dividends is not mandatory, the company will only pay dividends if it generates substantial profits. So, as a result, the growth opportunity may become limited.
The Bottom Line | Verdict
- The above-mentioned stocks represent a potential buying opportunity for the long-term dividend investor and those could be worth a spot in a yield-oriented portfolio.
- There are other factors an investor needs to look at such as profit history, business outreach, debt conditions, management quality, etc. FinTuts recommend taking some time out for research so that you can take the right and informed decision.
- There is no perfect or secret formula for buying the great dividend stock. However, a history of strong fundamentals or financial health, increasing dividend distributions over time, great entry points (technicals), a history of bullish trading activity, competitive advantages, etc. of the shares are also good factors to look for.
We hope that this article might have surely helped you to understand to weed out the losers and churn the best dividend stocks.
If you liked reading about this article, please do visit our other articles regarding Mutual Fund or Passive Income related reviews.
Besides, should you have any concerns, please feel free to comment below or do reach out to us. FinTuts will be happy to help. #HappyInvesting.