Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster

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

  • MyStocks


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

Should One Rely on Dividend Investing?
Fri, 1 Apr Pre-Open

There was a Tsunami of dividends announced in the month of March 2016. Corporates were rushing to pay dividends. The reason - Mr Jaitley introducing a 10% tax on individuals with dividend income of more than Rs 10 lakh per annum post 1 April 2016 in the Union Budget.

Going by data compiled by Capitaline on 9 March, around 275 companies decided to pay interim dividends post this announcement. The count would be significantly higher since. The latest company to announce dividend is Hindustan Zinc. It declared a special golden jubilee dividend amounting to a cash outflow of Rs 122 billion - including dividend distribution tax (DDT). Considering that the company paid a cumulative dividend of Rs 226 billion in the preceding fourteen years, this year's figure is definitely a massive number.

The rush to pay interim dividend is intended to beat the new tax introduced by the budget. However, should intentions to pay dividends be driven by tax planning? Certainly not. The decision to pay dividends should be based on the future expansion plans, rate of return on retained profits and cash flows. However, where one could raise a red flag is when companies dip into their reserves to pay dividends; this could lead to a possible cash crunch situation leading companies to take on debt instead. Not to mention the stress on debt-equity ratios that could arise as a result of this move.

After all, the decision to pay dividends should boil down to opportunity costs. If the rate of return on retained profits is expected to be high, more emphasis should be given to doing so. For eg: if a company is eyeing an expansion plan which can give it returns way higher than its cost of capital, then it should retain profits.

We are in no way saying that dividends are bad. After all, they provide protection against downside risks. Dividend income, unless consistent and from a fundamentally strong company, hardly compensates for the risk of investing in stocks. Rather than arbitrarily investing in dividend stocks, what one should do is to buy the most solid, consistent, and fastest-growing dividend companies - something that we like to call 'Dividend Multibaggers'.

But what exactly are these dividend multibaggers? How do you find them? What price should you pay for them? Tanushree Banerjee, Managing Editor of The Indian Letter, has laid out just the details you need in her special report - How to Pocket 10-30% Returns Without Selling Your Stock. Click here to join in and benefit from great dividend stocks right away...

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

What else is happening in the markets today? Dig in...

Equitymaster requests your view! Post a comment on "Should One Rely on Dividend Investing?". Click here!


Views on News

The Best Stocks in a Volatile Market podcast (Views On News)

Mar 5, 2021

Rahul Shah on the qualities that make for a good investment in an up and down market.

A New Super Cycle in Metals? (Fast Profits Daily)

Mar 5, 2021

In this video, I'll tell you if there is huge money to be made in metals or if there is more to the super cycle story.

Mirae Asset Corporate Bond Fund: Aiming for Growth with Focus on Quality and Liquidity (Outside View)

Mar 5, 2021

PersonalFN analyses the features of Mirae Asset Corporate Bond Fund and explains the potential this fund has to offer to its investors.

Charge Your Portfolio with this Smallcap Proxy Play on India's EV Revolution (Profit Hunter)

Mar 5, 2021

This could be the biggest wealth creator of the decade.

Inflation & Your Investments (Fast Profits Daily)

Mar 4, 2021

Inflation is the buzz word in the world of finance these days. It impacts all of us. Here's how it affects your investments.

More Views on News

Most Popular

It's the Beginning of a New Bull Phase in Smallcaps (Profit Hunter)

Feb 24, 2021

Last time the smallcap index crossed 19k a big correction followed. Here's what makes it different this time.

Make Rs 5,000 Per Day Trading the Market (Fast Profits Daily)

Feb 25, 2021

In this video, I'll show you how to get started on the path to daily trading profits.

The Hidden Tesla in My Great Indian Wealth Project (Profit Hunter)

Feb 23, 2021

An Indian company founded three decades ago in a garage caught my attention...

Gold 65,000 and Silver 84,000 in 2022

Feb 26, 2021

In this episode of the Investor Hour, India's #1 trader, Vijay Bhambwani, talks to us about the stock market, his new targets for gold and silver, the best long-term investment opportunity, and a lot more.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Mar 5, 2021 (Close)