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What is Dividend Investing and How to find Dividend Stocks

by Manish Chauhan · 3 comments

How do we get a consistent income and good growth both at the same time from our investments? In this article, I have talked about, what is dividend Investing and what are the important things we have to consider for investing with the purpose to build consistent income from such investments. We will see the concept of Dividend Investing and the risks involved and some examples of stock which are considered to be good Dividend Stocks.

What is Dividend and Dividend Yield?

When company earns the profit, it has two choices:

  1. Either invest that profit in back in the company advancements
  2. Pay back profits to its shareholders so that they get some return from the investments they made

So, generally companies declare some part of the total profit as Dividends to its shareholders. Suppose a Company earns profit of Rs 200 crores and it wants to give 100 crores as Dividends back to shareholders and there are a total of 10 crore shares in the market. It will come out to be dividend of Rs 10 per share. Now, if the fave value of each share is Rs 100 (10/100), then it will be called as 10% dividend declared by company, but if Market price of that same share is Rs 200, then the dividend yield would be just 5% (10/200).

So what matters is the Dividend Yield and not the percentage of Dividend that is declared. Suppose, you have 200 shares of Infosys and its current market price is Rs 1000, whereas the fave value of Infosys was Rs 10 and Dividend per share is declared at Rs 50, then the dividend percentage will be 500% (50/10), but the yield would be just 5% (50/1000) and your Dividend income will come out to be just Rs 10,000, which is 5% of your shares current market value of Rs 2,00,000.

See the Video Below to understand a little more.


How to create a regular and consistent Income from Dividend Investing?

So, the basic idea here is to invest in those stocks which have excellent history of paying Dividend. The important point is to note the dividend yield earned from these stocks. You might be interested in Stock Market Analysis using Nifty PE

Advantage of Dividend Investing:

Your Investment Growth: The stock price will have good growth over long term and the share prices will grow.

Consistent Income from Dividends: You can also get good income from the dividends you receive from Stocks

Tax Free Income: As per current income tax rules , the dividend received from Stocks are 100% tax free, unlike Mutual funds dividend where there is Dividend Distribution Tax.

Note: So Even if your Stock grows at 7% per year over long term and has a Dividend payout of around 5% every year… your actual return from the stock would be 12% approx which is a very good return.

Example of Some good Dividend Paying Stocks

Also see this chart with Top 20 Dividend Paying Stocks list by

Where to find out the Dividend Information for a Stock in BSE and NSE?

Click Here For BSE
Click Here for NSE

What are the important factors while choosing a stock for Dividend Investing and Doing Analysis for its Dividend Paying Capacity?

See this NTPC Analysis by TIP GUY , You can refer to his blog for all your Dividend Investing related queries, He is an expert on this Topic

See other articles on Dividend Investment Here

Conclusion

People who have good amount of money to invest in stock market and also want consistent returns per year can look for investing in good (researched) Dividend Stocks. This will give them good investment growth and regular income.

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{ 3 comments… read them below or add one }

1 Sankar October 5, 2009 at 9:50 am

Manish,

Thanks for you post. I am planning to build allocate a good portion of my portfolio to dividend stocks. I have a quick question for you.

Are there any minimum holding period for stocks to be eligible to receive dividend? Lets say I buy a stock today and next month, that company announces a dividend. Will I get my dividend even though I am holding it for just one month (or less than that)?

Thanks

Reply

2 Manish Chauhan October 6, 2009 at 7:08 am

@Shankar

As far as I know , there is a recording date when they see who all hold the stock and those people will get the dividend . So buy the stock before its declared and may be you can sell the stock later .

But !! , Remember that just gettign dividend should not be the primary reason for buying the stock ,Getting dividend should be a secondary thing . Better invest in good stocks who also give regular dividend .

Manish

Reply

3 Khalid October 16, 2009 at 8:49 pm

Hi dude
HAPPY DIWALI to you

Reply

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