Disadvantages Of Dividend

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Dividend investing is investing in stocks for large cash dividends so that is a regular return on the investment in the form of cash. In fact receiving dividends is very much like collecting interest on money deposited in a bank account. In stock markets, predicting the rise and fall of share prices is very much difficult and in many ways dividend stocks offer a safe way of getting returns. In addition to that dividend stocks also have several other advantages over non-dividend stocks. Let us try to understand the concept of dividend. When a company earns the profit, it either invests that profit in back in the company for growth or pays back the profits to its shareholders in the form of dividends, so that they get some return from the investments…show more content…
Let us say a company has shares which have a market value of Rs.50 and face value Rs.10. It decides to pay a dividend of 50% on each of its shares. As such the dividend paid on each of shares would be 50% of Rs.10 which is Rs.5. The dividend yield would be dependent on the market value of the stock and not on the face value. In this case the dividend yield would be (Rs.5/Rs.50) X 100 = 10%. The process of paying dividends has several stages. Initially, the board of directors of the company declares a dividend and sets a dividend record and payment date. A record date is the date as of which the shareholders are entitled to receive the dividend. The payment date is the date when the dividend is actually paid to the shareholders who had held the shares of the company on the record date. Dividends give a good idea of the fundamentals of the company as they give a good indication of the cash flows into the company. A company’s financial health can be easily made to look healthy in terms of net income or earnings per share (EPS) by doing some manipulations on the accounting part. However, with dividends such things are not possible as they are to be paid from the company’s cash flows they cannot be manipulated through accounting tricks. Companies that pay dividends tend to be more mature and stable as a company is only able to pay dividends after attaining a sustainable level of…show more content…
The investment grows as the stock price sees good growth over the long term due to the growth in the company’s prospects. In addition to that, there is a consistent income in the form of dividends. The dividends received from stocks are 100% tax free, unlike the mutual fund dividend where you have to pay tax. As such, if the stock price grows at 10% annually over the long term and has a dividend payout of around 5% annually the actual return of the stock would be 15% annually which is a very good return. If you have a diversified portfolio that has most of the stocks that raise their dividends each year, then the added income from the dividends can easily offset the losses that result from the stocks that suffer from losses. Dividend investing is a good option for retirees who want to live on their money and are no longer able to work as they are a source of regular income. Dividend-paying stocks also prove to be a better hedge against inflation than bonds. In a bear market, when share prices do not much of appreciation dividend paying companies typically continue to pay dividends. Holding these stocks can help offset the losses that may arise from a drop in share prices by making gains from the
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