2/13
Why does companies pay Dividends?
✅To attract investors & increase the value of their stock.
✅To reassure investors about the companies financial health.
✅To increase the investors’ confidence in the companies ability to generate earnings.
Why does companies pay Dividends?
✅To attract investors & increase the value of their stock.
✅To reassure investors about the companies financial health.
✅To increase the investors’ confidence in the companies ability to generate earnings.
3/13
✅To increase the demand for the stock as many investors seek regular income in the form of dividends & they would buy more of such dividend distributing cos.
✅To increase the demand for the stock as many investors seek regular income in the form of dividends & they would buy more of such dividend distributing cos.
4/13
Which Cos pay Dividend?
Cos which r large, established, old, earning predictable profits.
They fall in the category of STALWARTS & SLOW GROWERS. They have already experienced their biggest growth spurt & now don’t require all of their cash flows to fund their operations.
Which Cos pay Dividend?
Cos which r large, established, old, earning predictable profits.
They fall in the category of STALWARTS & SLOW GROWERS. They have already experienced their biggest growth spurt & now don’t require all of their cash flows to fund their operations.
5/13
Which Cos don’t pay Dividends?
START-UPS & FAST GROWERS do not pay dividends coz they retain their earnings to reinvest in the opportunities presented before them. They r in early stage of development & require huge investment for expansion & growth.
Which Cos don’t pay Dividends?
START-UPS & FAST GROWERS do not pay dividends coz they retain their earnings to reinvest in the opportunities presented before them. They r in early stage of development & require huge investment for expansion & growth.
6/13
Some mid-stage cos too may avoid giving dividends to invest profits back into their business. Also, if a company is not confident in the stability & dependability of its profit stream, it is unlikely to start a dividend.
Some mid-stage cos too may avoid giving dividends to invest profits back into their business. Also, if a company is not confident in the stability & dependability of its profit stream, it is unlikely to start a dividend.
7/13
Can firms pay Dividends in spite of making losses?
YES!
U heard it right. Companies can still pay dividends in spite of making loss in that financial year because firms pay div out of their retained earnings which has accumulated in cos books over the years.
Can firms pay Dividends in spite of making losses?
YES!
U heard it right. Companies can still pay dividends in spite of making loss in that financial year because firms pay div out of their retained earnings which has accumulated in cos books over the years.
8/13
But they can do this only for few years. If the kitty is not growing & outward payments continue, it starts depleting & ultimately becomes nil. Companies can dip into their reserves but at some point, if it is not earning it will stop paying its dividends.
But they can do this only for few years. If the kitty is not growing & outward payments continue, it starts depleting & ultimately becomes nil. Companies can dip into their reserves but at some point, if it is not earning it will stop paying its dividends.
9/13
Why can’t I buy a stock just a day prior to ex-div date & sell it on ex-div date? This way I can pocket the dividend for free.
THERE ARE NO FREE LUNCHES!
U have to buy a stock before ex-div date to be eligible to receive the next div payment.
Why can’t I buy a stock just a day prior to ex-div date & sell it on ex-div date? This way I can pocket the dividend for free.
THERE ARE NO FREE LUNCHES!
U have to buy a stock before ex-div date to be eligible to receive the next div payment.
10/13
Now, if u sell the stock on ex-div date, it will be on lower price. Stock price adjusts downwards to the exact amt of div paid on the ex-div date. So here u pocket the div, there u suffer capital loss. So net effect is nil. While u may also incur some transaction charges.
Now, if u sell the stock on ex-div date, it will be on lower price. Stock price adjusts downwards to the exact amt of div paid on the ex-div date. So here u pocket the div, there u suffer capital loss. So net effect is nil. While u may also incur some transaction charges.
11/13
How can we spot that dividend of a stock is at risk?
When price is continuously on downward move, it gives a signal. Dividend yield rises as the price crumbles. So, we can say that div yield is a good proxy for investment risk because exceptionally high yield
How can we spot that dividend of a stock is at risk?
When price is continuously on downward move, it gives a signal. Dividend yield rises as the price crumbles. So, we can say that div yield is a good proxy for investment risk because exceptionally high yield
12/13
can be a result of drastic fall in prices. Investors make the mistake of chasing high div yield stocks without finding the reason behind this high yield.
can be a result of drastic fall in prices. Investors make the mistake of chasing high div yield stocks without finding the reason behind this high yield.
I will cover more topics on dividend investing in upcoming posts. Stay tuned!
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13/13
Retweet for wider reach.
I tweet about #personalfinance & money topics. Follow @tradersushma to keep yourself posted.
Thanks!
----- End -----
13/13
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