Should One Rely on Dividend Investing?

Fri, 1 Apr Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

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

Top Gainers TodayTop Gainers over 1-WeekTop Gainers over 1-MonthTop Gainers over 1-YearTop Gainers over 3-YrsTop Gainers over 5-YrsTop Losers TodayTop Losers over 1-WeekTop Losers over 1-MonthTop Losers over 1-YearTop Losers over 3-YrsTop Losers over 5-YrsOnly BuyersOnly SellersMost Active StocksMost Popular Stocks52 Week High Stocks52 Week Low Stocks

INDICESBSE (Rs 0 to 1)BSE (Rs 1 to 2)BSE (Rs 2 to 4)BSE (Rs 4 to 10)BSE (Rs 10 to 20)BSE (Above Rs 20)BSE - AllBSE-30BSE-100BSE-200BSE-500BSE AutoBSE BankexBSE Capital GoodsBSE Consumer DurablesBSE FMCGBSE HealthcareBSE ITBSE MetalBSE Oil & GasBSE PSUBSE TeckBSE RealtyBSE PowerBSE A GroupBSE B GroupBSE Mid-CapBSE Small-CapBSE Basic MaterialsBSE Consumer DiscretionaryBSE IndustrialsBSE UtilitiesBSE Sensex 50BSE Sensex Next 50BSE Bharat 22BSE 150 MidCapBSE 250 SmallCapBSE 250 LargeMidCapBSE 400 MidSmallCapBSE AllCapBSE LargeCapBSE SmallCap SelectBSE 100 LargeCap TMCBSE InfraBSE ManufacturingBSE CPSEBSE Private BankBSE Diversified FinancialsBSE MomentumBSE Low VolatilityBSE QualityBSE Enhanced ValueBSE Divident StabilityS&P BSE IPOBSE SMEIPOBSE 100 ESGBSE CarbonexBSE GreenexNSE (Rs 0 to 10)NSE (Rs 10 to 20)NSE (Above Rs 20)NSE - AllNSE-50NSE ITNSE Nifty Midcap 50NSE JR. NiftyNSE Bank NiftyNIFTY Next 50NIFTY 100NIFTY 200NIFTY 500NIFTY MidCap 100NIFTY SmallCap 250NIFTY SmallCap 50NIFTY SmallCap 100NIFTY LargeMidCap 250NIFTY MidSmallCap 400NIFTY AutoNIFTY Consumer DurablesNIFTY FinanceNIFTY FMCGNIFTY MediaNIFTY MetalNIFTY PharmaNIFTY Private BankNIFTY PSU BankNIFTY RealtyNIFTY Oil & GasNIFTY SME EmergeNIFTY CommoditiesNIFTY CPSENIFTY EnergyNIFTY India ConsumptionNIFTY InfraNIFTY MNCNIFTY PSENIFTY Serv SectorNIFTY100 Liquid 15NIFTY Midcap Liquid 15NIFTY Midcap 150 Quality 50NIFTY50 Equal WeightNIFTY100 Equal WeightNIFTY100 Low Volatility 30NIFTY100 Alpha 30NIFTY Alpha 50NIFTY Dividend Opportunities 50NIFTY High Beta 50NIFTY Low Volatility 50NIFTY200 Quality 30NIFTY 500 Value 50NIFTY 100 Quality 30SECTORSAgricultureAirlinesAluminiumAsset Management CompaniesAutomobilesAuto AncillariesBanks (Private)Banks (PSU)BankingCementChemicalsDefenceDiagnosticsDronesEngineeringElectric VehicleElectric Vehicle BatteryEnergy SourcesESGEthanolFertilizersFintechFMCGFoodGreen HydrogenHotelsInfrastructureInsuranceInvestment and FinanceInvITIT (Large)IT (Others)LogisticsMediaMetalMiningIndia's Big Tech StocksIndian PharmaMNC PharmaPSUPaintPaperPlasticPowerRating AgenciesReal EstateREITsRenewable EnergyRetailingSemiconductorShippingSteelSugarSupply ChainTelecomTextilesTravel Support Services

10 results 25 results 50 results 100 results All results

Indian Share Market Update: Top Gainers and Losers