Postweek Report (5–9 Mar) — Investing for Dividends

Now track dividend returns for your smallcases

Markets update

Pulled down by banking and metal stocks, the markets ended in the red last week. Nifty closed down 2.21% at 10,226 and Sensex closed down 2.17% at 33,307. Uncertainty around the tariff on steel and aluminium imports by US pulled down metal stocks. Also, negative sentiments around public sector banks continued. Check out how you can make more returns by investing at market lows in our last postweek report.

We are very happy to announce that cumulatively all smallcase users have earned dividends of more than Rs 1 crore since our launch. Read on to understand how to invest for dividend income.

How to invest to earn dividend income

When a company earns a profit, it can choose to either employ the profit to further expand its operations or it can distribute this profit among its shareholders in the form of dividends. Generally, a company will pay out a part of its profits to its shareholders and use the rest of the profit to fund business expansion plans.

The dividend you receive would be related to the number of shares you hold. For example, if company A announces a dividend of Rs 10 per share and you hold 5 shares of the company, you will be entitled to Rs 50 worth of dividend income.

Importance of dividend income

A dividend from a company is additional income that you receive over and above the gains you make by holding the shares. To earn a dividend income, you should invest directly in the stocks of dividend paying companies.

Let’s say you bought one share of Infosys on 15 June 2016 for Rs 990.45 and sold it on 30 January 2018 for Rs 1,170.65. You would have made a profit of Rs 180.2, which would be a return of 18.19%.

But that is not all. During this period of holding the share, you would have also received dividends totalling Rs 63 from the company. This would be a dividend return of 6.36%. Hence, your total return from the stock investment would be 24.55%, not just around 18%. Your total earnings would also be higher than Rs 180.2; they would be Rs 243.2

Normally, an investor wouldn’t factor in the dividend return at the time of evaluating his or her investments. But as you can see, dividends play a very important part of the earnings that you can make from stock investments. In the example above, the dividend return would be a substantial 25.9% of the total return earned by you.

This is how dividend income can add to the earnings you make from your stock investments. Such dividends also become an added incentive to hold onto the shares, particularly when you don’t have to pay any tax on them as long as the total dividends earned in a financial year are less than Rs 10 lakh. Dividend paying stocks should ideally be held for the long-term so that you can benefit from dividend income as well as the company’s growth.

Read our postweek report on smalltalk to understand important dividend-related dates.

Tracking dividends on smallcase

Now on the smallcases website & app, you can track your dividend income for your smallcases. Once you log in to your smallcase account, you can click on ‘Details’ for a smallcase you have invested in to look at the dividend income you have received from the stocks in that smallcase.

Investing to earn dividends

Of course, it is not easy find and invest in companies based on dividend payment history. Also, you can’t invest merely on the basis of dividend criteria; you need to ensure the company meets other important investment criteria as well. The solution to this problem is investing in one of our dividend smallcases — Dividend Stars and Dividend Aristocrats.

smallcase investors have collectively earned dividends of over Rs 1 crore since launch, making this an entirely additional income received by them!