What Are Dividend Stocks?
Dividend stocks refer to a share of the organization’s profit shared with all the stockholders. These dividends are generally paid once in three months. Dividends pay investors like bonus. Organizations offer people opting for dividend stocks, a part of the organization’s profit.
The concept of dividends started in the 1790s when the companies paid their earnings as dividends. From 1946, forty per cent of the overall returns are Fromm the dividends. John D. Rockefeller, the first billionaire in history, stated that the only pleasure of his life was to see his dividends come in.
Why To Invest In Dividend Stocks?:
- The dividend stocks can offer profits from the increase in stocks (increase the value of shares) as well as from the dividends.
- Dividends provide the investors with the profits of the company. It gives high yields.
- The dividends from the stocks help the investors to back up the stocks when the market crashes and also decreases the effect of volatility.
- Few of the companies that offer dividend stocks have offered a constant increase in their dividend payouts for nearly up to twenty-five years.
- The investors receive dividends as an income without any influence of the stock markets. It generates a passive income.
- Investors can re-invest the dividend income in the other stocks when the prices are low.
- The dividend aristocrats outperform the other stocks during the market crashes or market downturns. According to the data, the S&P index the dividend stocks, especially the dividend aristocrats, offer high during the recession.
- Over the last twenty years, dividends constitute nearly sixty per cent of the S&P Index.
What Are The Drawbacks Of Investing In Dividends?
- There is a chance for companies to cut dividends at any point.
- Tax rates can increase and can influence the dividend rates.
- The budget 2020 proposed a tax on the dividend income that investors receive.
- They are not guaranteed.
- The investors do not have any power over the rate of dividends.
- It is not entirely safe to invest in dividends, but it is safer than depending only on increasing stock prices to gain profit.
Interested To Know About Risk-Free And Easy Investments? Click Here To Know The Best Small Saving Schemes
How To Invest Ideally In The Dividend Stocks?
Dividend Yield of a company is the dividend of the company divided by its cost. [ Yield = dividend / cost of its share] It is thus risky to look at a stocks yield only before investing. Running after high yields is dangerous. It is ideal to invest in resilient dividend policy. Check the information about the company before investing in its dividends. Look for the consistency of the dividends of the company and look for the growth.
Make sure to look for the sustainability of the company. The payout ratio (profits that investors get paid) of the company. An increase in the payout ratio indicates that the company is struggling to increase the dividend payments. The dividends are profitable if you follow the strategy of buying and holding. Holding the dividend stocks for a long time give higher benefits. Favour stocks with the Market Capitalization of over 5000 crores, dividend yield higher than three per cent. The stock price remaining positive in the previous year is another criterion to look at before buying stocks.
The S&P Index of the dividends in the year 2000-2002, during the Dotcom recession, was 10.1 to 10.8 per cent. The S&P of the normal stocks was -9.1 to -22.1 per cent. During the global recession of 2008, the S&P Index of the dividend stocks was -21.9 per cent while that of stocks was -37.0 per cent. They perform better even in the normal market by 12.1 per cent when compared to the 9.8 per cent index of the stocks. This trend signifies the importance of having dividend stocks in your portfolio.
What Are The Best Dividend Stocks To Invest In?
The company owns a great number of food and beverages under it. They have a diversified revenue. People use the products of the brand irrespective of the stock market situation or any crisis. The company pays out a dividend of about 3.82 Dollars. The earnings of the company are above the dividend payout. This gives a recession-resistant quality to it. The payout of the company has been increasing for 47 years.
Rural Electrification Corporation is a company that finances electrification in India. In recent times there has been an increase in demand in India. The payout in the previous year was rupees eleven per share. The dividend yield was around eight per cent. The price-performance of the company over the last year was +30 per cent.
Warren Buffett invested in this company. The income statement of the organization remains stable over the years. The dividend payout is 4 dollars. The earnings of the company are double that of the payout. It is a recession-resistant dividend stock. The company has a major moat.
4. IndianOil (IOCL):
It is a company owned by the government of India. The dividend payout of the company in the last financial year was more than nine rupees. The dividend yield of the company is slightly higher than seven per cent. The price-performance of the company in the previous year was -7 per cent. The net return of the company is slightly positive. It is one of the high dividend-paying stocks.
It is a huge company with its business being fledged into different sectors. The Market Cap of the company is 53,000 crores. The company gave out the dividend amount (payout) to the investors of rupees eighteen in the last year. The dividend yield is thirteen per cent. The share price of the organization was below twenty-six per cent.
6. BSE Ltd:
Bombay Stock Exchange Limited is a stock that trades at the NSE. A dividend or payout of rupees thirty. The company’s dividend yield is around six per cent. The price return in the last year was -18 per cent. The shareholders obtained a net loss of -12 per cent.
7. Coal India:
The Initial Purchase Option (IPO) of the company was the highest in India. It is a public sector company. The dividend payout of the last year was thirty rupees. The dividend yield of the company is nearly 6.8 per cent. The price was -20 per cent.
People may even get good returns from the dividends from the ones they receive bad or average returns according to psychology. Emotional stability also plays a role while investing. Hence experienced investors believe that investment is twenty per cent planning and eighty per cent psychology. When the market reaches the bottom, do not panic and buy dividend stocks. Stocks bought at low prices give higher yields. Dividend investing keeps you at the top of the psychological game.