• HDFC
• 24 May 2019
• Basket investing,Equity Product

HDFC, Tester

Dividend Payouts: An indication of positivity

Generally, if a company has the ability to pay steady and increasing dividends over time, it means that it is doing well. Hence, dividend paying companies are often sought after by investors to invest their money in.

 

In some scenarios, even though theoretically the stock price should’ve decreased - if a company announces to start dividend payout, the stock price tend to gain. This usually happens when the dividend amount ends up being higher than what the market was anticipating or if the market was not anticipating it at all. Such is the power of positive signal.

 

People (and the market itself) read into the dividend payouts differently based on the amount of the dividend that has changed compared to previous years. If it’s reduced, this is seen as a negative signal as this likely happens when there are some underlying issues within the company. If the dividend amount stays the same, it’s a good sign and this payout is expected of the company.

 

On the other hand, if the firm increases its dividend, this is taken as a very positive sign by the market - the thinking is that the company is growing & doing well enough to not only payout dividends but also increase it!

 

Solid source of tax-free secondary income

Apart from indicating sound financial health of the company, dividends allow investors to earn an extra regular income, aside from the capital gains.

* Moreover, any income received as dividend from an Indian company is exempt from tax as the company declaring such dividend has already deducted dividend distribution tax before paying the dividend.

That said, investing in companies that yield dividends is quite rewarding in itself as it can be a stable source of retirement fund and a steady secondary income.

 

About smallcase

We have put together a portfolio of stocks consisting of companies that have increased their dividends consecutively for the last 10 years. The stocks in Dividend Aristocrats smallcase meet this criteria and also create a portfolio where every stock is weighted based on various fundamental factors, including their dividend payout. Moreover, this portfolio is rebalanced every year to ensure only companies that meet the above dividend standards remain in the smallcase. Some stocks in this smallcase HDFC Bank, ITC Ltd and Bajaj Finance etc.

 

By investing in the Dividend Aristocrats smallcase, you are investing in diverse companies that are not only growing consistently & are operationally stable, but also sending positive signals to the market.