Investing Decoded: Simple Path To Building A Portfolio In Millions by Anirudh Rathore, formerly a banker, now an entrepreneur is an extremely accessible and real guide for learning about the risks, benefits, methods, and tools required to start building a good equity portfolio on your own.
Rathore’s years of experience and research come together in this book, offering simple tools and mindset tips to help you understand stock markets, manage risks, and follow trends.
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Dividend
Dividend is a component of the total return of a stock. One part of this is the stock price. If you buy a share for `100 and after one year it is at `110, then you make a `10 return. The other part is the dividend. The dividend yield is a stock’s annual declared dividend payments to shareholders, which is a percentage of the stock’s current price. If the price of the stock is `100 and the management declares a dividend of `5, then the dividend yield is 5 per cent. This yield is the annual income from a stock, based on today’s price. Please note that the dividend for the next year may not be the same. It could fluctuate based on the company’s fortunes.
What does the dividend tell us?
A high dividend yield offers the stock price a floor, a range from under it usually does not drop, and makes the stock an interesting buy for investors. A high dividend yield also at times indicates that the management does not have suitable areas of capital deployment, therefore, they prefer to pass it on to the shareholders.
Usually, companies with high debt will declare a small dividend or refrain from declaring a dividend at all. Mature companies pay better dividend yields as they accumulate FCF. New companies have a lesser dividend component as they need to spend the money for growth of the business. Companies that show a consistency in year on year dividend payment should be preferred for purchasing shares.
How much dividend should one expect to receive in a year?
I think most career individuals should strive for at least `12 lakh of dividend per year. This figure is based on the comparison to the pensions of Class 1 officers in the central government. I think this annual dividend aspiration of `12 lakh is a good starting point as it covers most basic domestic costs of a family on an annual basis, given the current state of inflation. There are plenty of corporates that have a history of growing dividends over the years. Therefore, it is likely that this `12 lakh figure will keep increasing as the dividend payouts of the companies expand over the years. India traditionally has a 1.57 per cent dividend yield for the BSE Sensex. To attain the `12 lakh dividend goal annually, the investor should aim to have a portfolio of roughly 8 crores. It goes without saying that if the portfolio consists of high-dividend yield stocks of 3 per cent and above, then the total portfolio required will be around 4 crore.
Below are some good dividend yield companies.
Oracle Financial Services Solutions Ltd
Oracle financial services solutions help businesses build digital ecosystems that empower their customers to manage and enrich their financial lives. They operate data-driven FinTech solutions for companies. The stock is currently trading at a 5.76 per cent dividend yield, which makes it attractive as the business is expected to do well.
ITC Ltd
ITC is one of India’s foremost private sector company. It deals with tobacco, FMCG, hotels, packaging, paperboards and specialty paper, agriculture and IT. The stock is available at a dividend yield of 5 per cent. The advantage of the company is that it has a lot of growth drivers in place which can also give the stock good capital appreciation.
SJVN Ltd
This is a public sector power transmission company. It is a Miniratna company of the Himachal Pradesh government. The dividend yield of the company is 8.22 per cent and it is a regular dividend allocator.
Power Grid Corporation of India Ltd
This is a Maharatna Central Public Sector Enterprise. It is a Central Transmission Utility (CTU) of India. PGCIL is India’s largest electric power transmission utility and its dividends have been growing at a steady pace. The current dividend yield is
4.38 per cent.
GAIL India Ltd
GAIL (India) Limited is India’s leading natural gas company with diversified interests across the natural gas value chain of trading, transmission, LPG production and transmission, LNG re-gasification, petrochemicals, city gas, etc. The company has a dividend yield of 4.18 per cent and a bright business future ahead.
About the Author
ANIRUDH RATHORE, formerly a banker, now an entrepreneur has over two decades of experience in equity investment. He is now the owner of two heritage hotels in Rajasthan.
(Extracted with permission from the author and Publisher Penguin Random House India)
