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Decoding Dividends: Yield, Payout, and Rate Dividends are a sweet perk of stock ownership, but understanding the different ways they're discussed can be confusing. Let's break it down using an example: Stock Price: Rs 350 FY24 Dividend Declared: Rs 10.5 Face Value: Rs 10 FY24 Earnings Per Share: Rs 70 1. Dividend Yield: Your Return on Investment (ROI) in Dividends Imagine dividend yield as your dividend "bang for your buck." It shows the percentage of your stock purchase price returned as dividends each year. In our example: Dividend Yield = (Dividend Per Share / Stock Price) x 100 = (10.5 / 350) x 100 = 3% This means for every Rs 350 you invest, you get roughly Rs 3 back in dividends annually. 2. Dividend Payout: How Much Profit Goes to Shareholders Think of the dividend payout ratio as a company's generosity gauge. It reveals what percentage of its profits are paid out as dividends. Dividend Payout = (Dividend Per Share / Earnings Per Share) x 100 = (10.5 / 70) x 100 = 15% Here, the company distributes 15% of its earnings to shareholders, reinvesting the remaining 85% in growth. This balance reflects a company's growth focus – those with limited growth prospects might offer higher payouts. 3. Dividend Rate: Less Useful for Investors The dividend rate, often quoted by companies, isn't as helpful for investors. It simply compares the dividend per share to the face value (a mostly symbolic value) and expresses it as a percentage. Dividend Rate = (Dividend Per Share / Face Value) x 100 = (10.5 / 10) x 100 = 105% While it's 105%, this number doesn't tell us much about the actual return on investment relative to the current stock price or the company's earnings. Remember: When evaluating dividend-paying stocks: -Focus on Dividend Yield: It directly reflects your potential return on investment. -Consider Dividend Payout: It reveals the company's profit-sharing strategy and growth focus. By understanding these terms, you can make informed decisions about dividend-paying stocks in your portfolio. Follow Chakrivardhan Kuppala for insightful posts

Dividend Yield Trap A lot of investors buy high dividend yield stocks but that’s not a right approach. Let’s understand through an example: 1. Let’s imagine this company is making a Earning Per Share of Rs 10 that is total profit divide by total outstanding share. 2. Now if we see the company has dividend pay out ratio is 50% 3. That means on profit per share earned company will give 50% as dividend that will come out to be 5 Rs dividend per share. 4. Now assuming the current market price of stock is 100 5. That means if you buy 1 share at 100 Rs the company would have given you 5 Rs of dividend 6. That means your return through dividend would be 5%. 7. Now, lot of people think that total stock market return is equal to price appreciation + dividend yield. 8. So they think 5% will be generated through dividend only so we can easily buy the stock 9. But they forget a very important thing this is not about the past dividend yield it is about the expected dividend yield. 10. Let’s imagine the company at the end of 1st year reported a profit of 70 crore due to lower profit correct they decided to give a dividend of only 20% 11. That means on a earning per share of 7 Rs we will only get dividend of 1.4 Rs . 12. Now we bought the stock at 100 Rs but we ended up getting a dividend of only 1.4 13. that means a dividend yield of only 1.4% alright. 14. So, always think about expected dividend yield as compared to the past dividend yield. #dividend #stocks #stockmarket #financetips #investing #stocktips #indianstockmarket #finnacle

Decoding Dividends: Yield, Payout, and Rate Made Simple Dividends are one of the perks of owning stocks, but the way they're presented can be a bit tricky to understand. Let’s break it down with an example: Stock Price: ₹500 Dividend Declared for FY24: ₹12 per share Face Value: ₹5 Earnings Per Share (EPS) FY24: ₹80 Dividend Yield: How much you get for what you pay? Think of dividend yield as your "dividend return on investment." It shows the percentage of your stock price that you get back as dividends every year. Dividend Yield = (Dividend Per Share / Stock Price) x 100 = (₹12 / ₹500) x 100 = 2.4% This means for every ₹500 you invest, you get ₹12 in dividends each year – that's a 2.4% return on your investment. Dividend Payout: What percentage of profit is shared? The dividend payout ratio tells you how much of a company’s profit is given to shareholders as dividends. Dividend Payout = (Dividend Per Share / Earnings Per Share) x 100 = (₹12 / ₹80) x 100 = 15% So, the company is sharing 15% of its profits with shareholders and keeping the other 85% for growth. 3. Dividend Rate: not as useful for investors The dividend rate compares the dividend to the face value of the stock, but it doesn’t give you the best picture of your returns. Dividend Rate = (Dividend Per Share / Face Value) x 100 = (₹12 / ₹5) x 100 = 240% While this number is high, it doesn’t reflect the return on your actual investment or how much of the company’s earnings are being paid out. Key Takeaways: Understanding these terms can help you make smarter choices when adding dividend-paying stocks to your portfolio! Follow Chakravarthy V for more such insights.

If you would have invested ₹100,000 equally across these companies, you would have received on average around ₹3,000 on each stock last year just as dividends. Read more here

Flash Info #235- Capital Market Preferred dividends refer to the dividends paid to holders of a company's preferred stock. 1. Definition: Preferred dividends are the distributions of a company's profits that are paid out to shareholders of the company's preferred stock before any dividends are paid to the holders of the company's common stock. 2. Preference: Preferred stockholders have a higher claim on the company's earnings and assets compared to common stockholders. This gives them preference in receiving dividends. 3. Dividend Rate: Preferred stocks typically have a stated, fixed dividend rate that is set when the preferred shares are issued. This is unlike common stock dividends, which can fluctuate. 4. Cumulative vs. Non-Cumulative: Preferred dividends can be either cumulative or non-cumulative. Cumulative means if a dividend is missed, it must be paid before common stockholders receive any dividends. Non-cumulative means missed dividends are permanently forgone. 5. Taxation: Preferred dividends are generally taxed as ordinary income to the recipient, unlike qualified dividends from common stock which can receive more favorable tax treatment. 6. Impact on Stock Price: The payment of preferred dividends is seen as a more stable and reliable source of income compared to common stock dividends. This can contribute to higher valuations for preferred shares. 7. Seniority in Bankruptcy: In the event of bankruptcy, preferred stockholders have a higher claim on the company's assets than common stockholders. Preferred dividends provide a predictable income stream for preferred shareholders, who have a senior claim compared to common stockholders. The specific terms of preferred dividends are outlined when the preferred shares are issued. #capitalmarket #investors #ethiopiadiaspora #importer #Exporter #ECMA #founders #ceo #businessowners #banks #moneymarket #commoditymarket #derivatives #valuation

How Dividends and Compound Interests Work Dividends and compound interests are integral to investment, serving multiple purposes for both the investor and the company. For the latter, they are liabilities that sometimes make a statement, presenting the potential to attract more investors. For you, the investor, they are assets of some sort that could help you build a measure of wealth from your investment over time. Dividends are a portion or percentage of a company's profits distributed to its shareholders after trading stock within a set period. Think of dividends as a company’s way of appreciating you for buying stock, shares, or bonds, as the case may be. When a company or issuer receives profits from stocks traded, it may decide to reinvest the profit, pay dividends, or do both. All of these options are largely dependent on the unanimous decisions of the company’s board of directors. Once the company’s board agrees to pay dividends, they make an announcement called the dividend declaration. Dividend declarations tell how much profit per share of stock shareholders should expect and when payment will be made (the payment date). Payment dates often vary by company, and you may receive your dividend monthly, quarterly, or yearly. The dividend declaration also announces a record date to determine which shareholders are eligible to receive payment. Only shareholders who own shares as of the record date will receive the dividend. Again, depending on the company where you own shares or purchased stocks, your dividend could be in cash form, property, or additional stock. And then, you may choose to take it or re-invest it by purchasing additional stock at the time. What are compound interests, and how are they related to dividends? Compound interest is simply a buildup of your interest over time. In the investment space, compound interest works by reinvesting the dividends received on an initial investment by buying more stock. If or when the company or issuer performs well and its stock price increases, the value of your principal investment becomes a nudge higher. This, in turn, leads to exponential growth as your interest earns more interest and subsequently increases in value. The longer you hold onto your investment and reinvest dividends, the more time it has to compound and grow. Let's say you invest $1,000 in a dividend-paying stock with an annual dividend yield of 5%. In the first year, you receive $50 in dividends. Instead of cashing out, you reinvest those dividends in the stock, purchasing more shares. In the future, you become eligible to earn dividends on your original $1,000 and the additional shares you buy with your $50. While dividends and compound interest are unique concepts, they intertwine to amplify your investment returns, whether you're an accredited or non-accredited investor looking to diversify your portfolio. Got questions or need more insights, schedule a one-on-one session with our investment experts

Lower Rates: A Boon for Stock Investors Declining interest rates create a fertile ground for stock investing. Lower rates increase the present value of stocks by reducing the discount rate applied to future earnings, making these earnings more valuable today. For companies, cheaper borrowing costs mean more funds for expansion, higher profitability, and potentially larger shareholder payouts. This strengthens a company’s stock appeal, benefiting investors. Additionally, lower rates reduce investor risk aversion, further driving up stock prices. Case Study: CREIT Suppose you have P100,000 to invest, and each CREIT share costs P2.93. With that money, you can buy about 34,129 shares. CREIT gives you P0.19948 per share as a dividend, which is like a small payment you get just for owning the shares. If this dividend grows by 2.361% each year, next year, you would get P0.20417 per share, adding up to about P6,965 in total dividends for all your shares. To estimate the future share value, we take the expected next-year dividend and divide it by the difference between the desired return rate (8.5%) and the dividend growth rate (2.361%). This calculation gives us a share price of about P3.14 after one year. Your shares would then be worth approximately P107,175, and with dividends, your investment totals P114,140, a return of 14.1%. Now, if interest rates drop by 0.10%, the required return for CREIT could decrease from 8.5% to 8.4%. This lowers the discount rate, increasing the stock’s intrinsic value. The share price might rise to P3.18, bringing your shares’ value to about P108,589. With dividends, your total investment would reach P115,554, a 15.5% return. This example illustrates that a 0.10% decline in interest rates can enhance your return by roughly 1.4%. It highlights the favorable impact of falling rates on dividend-paying stocks like CREIT, making them even more attractive. Conclusion With interest rates poised to drop, increasing your stock investments is a savvy move. Lower rates boost stock values, attract investors, and lead to better returns. Now is the time to strengthen your portfolio with high-demand shares. #absolutereturninvesting

Beware of the stock dividend trap. Many advertisements on the internet tell you to build up your dividend income to prepare for retirement. However, beware of a false argument about this. If you depend on your stock dividend for constant income, then you assume that your monthly or quarterly dividend income will not decrease when declared, but perhaps increase. A company's dividend is declared by the Board of Directors, and the Board may not declare a dividend if they have a losing quarter or bad year. Then, what happens to your expected dividend income? So, if you want to live on your dividend income, you have to make sure the companies that you have stocks are always profitable from quarter to quarter and year to year. That's not easy to determine. Market conditions change over time. If you held Eastman Kodak stock decades ago, you may have received dividends. But today, Eastman Kodak is no longer in business so were companies like Motorola, Lotus Development, and others. Dividends from companies are not certain over time. So, don't focus too much on just owning dividend stocks because the dividends may not be there tomorrow.

Day 14: Dividends Part 3 of 3   Over the past two days, we've talked about what dividends are and how you can use them to either provide income or reinvest for growth. Today I'm wrapping things up by diving into dividend yields and tying everything together with a simple example.   Understanding Dividend Yield When evaluating dividend-paying stocks, one key metric to consider is the dividend yield. The dividend yield is a ratio that shows how much a company pays out in dividends each year relative to its share price. It’s calculated by dividing the annual dividend per share by the stock's current market price. So if a stock is priced at $10 and pays an annual dividend of $0.50, the dividend yield would be 5% ($0.50 / $10). A higher dividend yield might seem attractive, but it’s crucial to consider the overall health and stability of the company.   What Is Considered a Good Dividend Yield? A "good" dividend yield can vary depending on the market and your investment goals. Generally yields between 3% and 6% are considered solid. Yields higher than that might indicate higher risk, while lower yields might suggest that a company is reinvesting more of its profits into growth rather than paying dividends.   Bringing It All Together Imagine you own 1,000 shares of Turners. The company announces an annual dividend of $0.20 per share. That’s $200 in dividends for the year. You have two options: Use the Dividends as Income: You could take the $200 in cash and use it to supplement your daily expenses or as additional income on the side. Reinvest for Growth: Alternatively you could opt into a Dividend Reinvestment Plan (DRP) and use that $200 to buy more shares of Turners. This reinvestment could compound over time, growing your investment. Now, let’s consider the dividend yield. If Turners' share price is $4.00, the dividend yield would be 5% ($0.20 / $4.00 x 100). This yield is solid, indicating a good balance between income and growth potential.   Dividends are a powerful tool no matter your investment strategy. I hope these last three days have cleared things up or at least filled in the gaps you didn’t know. And remember when it comes to dividends, the only thing better than getting paid is….. getting paid. Again...and again...and again! #sortedmoneymonth2024 #sortedmoneymonth #MoneyMatters #investingtips #investingtricks #DailyTips #FinancialLiteracy #SmartInvesting #FinancialEducation #FinancialWellness #WealthBuilding #GrowYourWealth #InvestmentAdviser #InvestmentAdviserNewZealand #WomeninFinance #dividend #dividendinvesting

Wouldn't you love to own shares of stock that pay north of 8% in dividends? Read on to learn how. Have you ever heard of preferred stock? Well, it can be a game-changer for portfolios. It offers the benefits of decent income and possibly price appreciation. As @Investopedia.com notes, preferred stock, also known as "preference shares", sits between common shares and bonds in a company's capital structure. That means, preferred stockholders get THEIR dividends paid before common stock dividends. A few types of preferred stock you should know: - Cumulative (Guaranteed): Missed dividend payments? No problem. Holders get paid all arrears owed before common shareholders see a dime. ▶️ Non-Cumulative: Miss a payment? That’s it. No catching up later. ▶️ Participating: Beyond the regular dividend, these shares offer extra payments during extraordinary events. ▶️ Convertible: These can turn into common shares at a predetermined number or event. Investing isn’t just about common stock. Sometimes, preferred shares or bonds offer more compelling opportunities! For the resources I rely on for my preferred stock info, check out my newsletter: 1sthand-research.ck.page #Dividends #OutoftheBox #PreferredStock #InvestmentIdeas #IncomeInvesting