Posts Tagged ‘preservation of capital’

INVEST IN DIVIDEND PAYING COMPANY Final Part :)

Lots of market participants, who wish for regular income by way of dividends, look for stocks which maintain a steady or an upward trend of dividend declaration.

.

Here is a list of few companies.

.

Ideally, a low market price when combined with high dividend payout gives high dividend yields. Dividend yield is an uncomplicated tool for investor to evaluate his investments in stocks and to choose the right portfolio depending on his priority.

.

Here are two things which will be very helpful for investor:

.


Dividend-capture strategy – Investors using a dividend-capture strategy will simply buy the stock prior to the ex-dividend date, and would ensure that they would receive the payment by holding the security until the ex dividend date, and then sell the security. In theory, they should be able to quickly buy and sell a number of securities near their ex dividend dates and capture numerous dividends. However, in practice the truth is that this is not always the case.

.

Dividend Arbitrage – It is an options trading strategy that involves purchasing put options and an equivalent amount of underlying stock before the ex-dividend date and then exercising the put after collecting the dividend. When used on a security with low volatility (causing lower options premiums) and a high dividend, dividend arbitrage can create profits, assuming very low to no risk.

.

Concluding I would like to say that all investors have mainly two objectives. First is earning from capital appreciation and the second is profits from dividends. And, it is the skill of any stock to offer both these incomes that determine its market price. Investors can increase their returns by investing in dividend-yielding stocks, especially following a continuous stream of dividends. Considering the fact that dividends are tax free, it makes all the more sense to target these stocks.

.

WANT GOOD RETURN, LOW RISK – INVEST IN DIVIDEND PAYING COMPANY Part 1 :)

Dividend= Extra Income. Investing in high dividend paying companies is wise decision as dividend paid is tax free at the hand of the investors; but what should be given greater importance is “preservation of capital”. In that case investors have a fine amount of dividend-paying stocks in portfolio. The tax on dividends is rewarded by the company at the time of announcement of the dividend.

.

Well, the price of dividends may differ from company to company depending on profits earned, cash flows, investment and the policies of the company. Company announces a small size of earnings as dividends. The rest is used in business to spend and generate high returns. Final dividends are also a purpose of the future cash requirements of the company.

.

A dividend is always paid on face value of the company. Dividend yield is considered as the ratio of the annual dividends amount announced to the existing market price of the company’s stock. The dividend yield ratio shows what investors earn on their stock. For example, a 10 percent dividend on Rs 100 equity share means a dividend of Re 10 per share.

.

Dividend yield: Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price.In the absence of any capital gains, the dividend yield is the return on investment for a stock. It is often expressed as a percentage. Its reciprocal is the Price/Dividend ratio.

.

To calculate dividend yield is main work to analyze the proper income from an investment. Dividend yield is a major determining factor for stock prices. Dividend yield is calculated as follows:

.

.

It should be clear that dividend yield is not the same to the amount of dividend paid by a tax company. It is the dividend payout with reference to the market price of the company’s stock. While the dividend is received, it is computed as a percentage of the current market value of the share and is termed as the dividend yield.

.

Dividend yield also specifies how an investor is prepared to pay for the predicted dividend stream generate by a single stock. Investor uses the projected dividend values over a period or past dividend values for the analysis.

.

Dividend Payout Ratio The percentage of earnings paid to shareholders in dividends.

.

.


The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio. A dividend payout has a direct effect on the cash balance of a company. Some companies follow the policy of sustaining dividend payouts or gradually increasing them. These companies demand higher values in the stock markets as compared to the companies following erratic dividend payout policies.

.

Preferred Dividend coverage ratio: Preferred Dividend coverage ratio is a coverage ratio that measures a company’s ability to pay off its required preferred dividend payments. A healthy company will have a high coverage ratio, indicating that it has little difficulty in paying off its preferred dividend requirements.

.

.

This ratio gives investors an idea of a company’s ability to pay off its preferred dividend requirements, and also an idea how likely they are to be paid dividends. If the company has a hard time covering its preferred dividend requirements, common shareholders are less likely to receive a dividend payment on their holdings.