Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
  • MyStocks


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

Are dividends more lucrative than voting rights?
Tue, 13 Mar Pre-Open

The Indian stock markets have rallied 11% since the start of 2012, but it is the shares with differential voting rights (DVR) that are hogging the limelight. DVRs are like ordinary equity shares but with differential voting rights. They are listed and traded in the same manner as ordinary equity shares. However, they mostly trade at a discount as they provide fewer voting rights compared to ordinary equity shares. Companies generally compensate DVR investors with a higher dividend payout.

In India, even after a decade since the product was introduced, the concept of DVR is yet to gain wide acceptance. This is due to lack of understanding and awareness about the product. As a result there are only four listed DVRs issued by Tata Motors, Pantaloon Retail, Gujarat NRE Coke and Jain Irrigation Systems. However, all of them have out-performed the corresponding shares in February 2012. The gap between these companies' DVRs and ordinary shares has thus narrowed in the past month.

So does it make sense to invest in DVRS?

For an investor, who believes in being a part of the company's decision processes, DVR shares are not attractive due to limited voting rights. However, if one is a minority investor and is not concerned much about voting rights per se, then investing in the DVR would certainly be an attractive proposition. DVRs mostly trade at a discount, largely due to the fewer voting rights they enjoy. However, at times, the gap between DVR and ordinary shares is large, providing good opportunity to investors. First of all, an investor stands to gain from capital appreciation in a scenario where the price differential between the ordinary share and the DVR share reduces over a period as a result of rising awareness about the product. Secondly, the DVR investor will also be entitled to higher dividends. The only caveat is that before investing in a DVR, investors need to be comfortable about the company's fundamentals and future prospects. And most importantly have trust in its management's quality and credibility.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "Are dividends more lucrative than voting rights?". Click here!


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Mar 16, 2018 (Close)