Dividend Stocks revisited - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Dividend Stocks revisited

May 20, 2003

It was Budget day and right here in this section, we put up an article "Dividend Stocks: For a change" . The main aim of the article was to inform our readers that it is not always prudent to invest in high-risk stocks and it does make sense to invest a part of your portfolio in these offbeat stocks, if one may call them so. Dividend stocks may not give astounding returns within a short span of time, but they definitely provide some kind of a hedge against the day-to-day volatility witnessed amongst stocks that are darlings of the market.

Not much has changed since the Budget day as far as the uncertainty in the minds of investors is concerned, regards the movement of the indices. Though the long-term growth prospects of the economy and our stock markets look promising, for some reason, this feeling is not reflected in the investor sentiments, due to which the BSE Sensex has lost nearly 12% since the beginning of 2003. Historically low valuations (11x) and the GDP poised to grow at almost 6% for the next few years (government has targeted a growth rate of 8% by 2007) provides a strong case for investment in Indian equities. Moreover, healthy forex reserves and strong export potential further strengthens this argument.

Market Price
(Rs)
Jan 1
2003
Mar 1
2003
May 14
2003
% change since
March 1
BSE Sensex 3,377 3,284 3,027 -7.8%
Dividend stocks:    
PNB Gilts 24 23 22 -2.6%
Tata Chemicals 58 64 72 12.5%
LIC Housing Fin. 64 71 84 18.6%
Blue Star 74 78 98 26.6%
Index heavyweights    
Infosys 4,771 4,284 2,791 -34.9%
HLL 182 169 148 -12.4%
Reliance 298 294 269 -8.5%

However, in this article we revisit the behaviour of a few dividend stocks since the Budget day. In Budget 2003-04, the Finance Minister announced that dividend tax in the hands of the investors has been done away with. In line with expectations, 3 out of the 4 dividend stocks (covered in our previous article) have managed to outperform the indices in a big way, which is clearly visible in the table above. The story is similar for other dividend stocks like Rallis India (10%), Chambal Fertlisers (7%) and GE Shipping (22%) to name a few.

Dividend stocks, though primarily a story of dividends, sometimes have a surprise element in store for investors in the form of capital appreciation. This is precisely what happened to the stocks under consideration, barring PNB Gilts. While PNB Gilts lost less than 3% since the announcement of tax-free dividends, Tata Chemicals (13%), LIC Housing Finance (19%) and Blue Star (27%) managed to gain ground. This is a commendable performance when compared to investor favourites like Infosys (-35%), HLL (-12%) and Reliance (-9%), which lost considerable ground.

However, at the same time, we continue to maintain the stand that investing in a dividend story is not just about the dividend yield of the stock. It is also about the company, its management, the business model and fundamentals of the company. The dividend history of the stock is a good indicator of future dividend declarations by the company. However, there is always the likelihood that the dividend declaration trend might not continue or dividends may be curtailed down.

In conclusion, it can be said that whether there is a tax on dividends or not or whether the stocks markets will be northbound or southbound, part exposure to high yield dividend stocks is always likely to assure the investor of a steady income. Not to forget the built in surprise element!


Equitymaster requests your view! Post a comment on "Dividend Stocks revisited". Click here!

  

More Views on News

HUL 2019-20 Annual Report Analysis (Annual Result Update)

Aug 6, 2020 | Updated on Aug 6, 2020

Here's an analysis of the annual report of HUL for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of HUL. Also includes updates on the valuation of HUL.

HUL Announces Quarterly Results (1QFY21); Net Profit Up 7.2% (Quarterly Result Update)

Jul 22, 2020 | Updated on Jul 22, 2020

For the quarter ended June 2020, HUL has posted a net profit of Rs 19 bn (up 7.2% YoY). Sales on the other hand came in at Rs 106 bn (up 4.4% YoY). Read on for a complete analysis of HUL's quarterly results.

HUL Announces Quarterly Results (4QFY20); Net Profit Down 1.2% (Quarterly Result Update)

May 4, 2020 | Updated on May 4, 2020

For the quarter ended March 2020, HUL has posted a net profit of Rs 15 bn (down 1.2% YoY). Sales on the other hand came in at Rs 90 bn (down 9.4% YoY). Read on for a complete analysis of HUL's quarterly results.

Wait! Don't Chase Smallcaps Now (Profit Hunter)

Sep 18, 2020

Let the markets take a breather before you jump in.

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

I Recommended this Stock over Page Industries because it's Relevant to Doubling Your Income (Profit Hunter)

Sep 7, 2020

Things are not often what they seem in the market and how you can take advantage of this.

The NASDAQ Whale Could Harm Your Portfolio (Fast Profits Daily)

Sep 7, 2020

The discovery of Softbank pushing up prices on the NASDAQ will cause volatility in the market. Stay alert!

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

HUL SHARE PRICE


Sep 18, 2020 01:05 PM

TRACK HUL

COMPARE HUL WITH

MARKET STATS