I surely wanted to put this thought across to all the VP members and what better day than today’s auspicious occasion - Happy Diwali to all of you!
Recently I was looking at stabilizing my portfolio and although many may not agree with this format, however, I am sure few might be sailing in this boat already and I need your opinion if you are following this plan:
It is a simple dividend reinvestment strategy with a little twist of mine. Here is the logic:
I have chosen all the controversial and notorious high-dividend paying public companies (10-15 scripts) wherein I am not really looking for returns as I would continue to hold them for a very very long term.
The Dividend yield of these companies is one of the highest in the Industry as their motive is to just continue to run Business as Usual and give back all the profits back to Govt to invest in Economy
To still remain diversified, I would want to select scripts from different sectors. For e.g Not buying REC & PFC both but expanding themes like Power, Metal, Oil, IT etc.
Shortlist 5 scripts at the lowest level of their price using moving averages and multi-year charts and invest 25% of my existing portfolio with 5% allocation in each script.
Whatever dividends are received, re-invest back in the script which is performing poorly since my buy price out of these 5 companies. Essentially not to re-invest in the same script from where the dividend is received but the weakest of the 5.
Continue to accumulate more and more for higher dividends with the increase in quantity.
If the script starts moving in overbought zone and all-time high region, book the profit and exit and re-invest in one of the 10-15 list of companies trading at a lower price and repeat the strategy.
I have the following list of companies at this moment
I am looking to gain insights from anyone who is already doing something similar and what is your view towards it. Remember, this is only 25% of my portfolio wherein I know that I am slowly building wealth at least better than FD rates which are again taxed at the same rate. This would be a very long-term strategy to ensure we enjoy the benefit of stock split and any positive tailwinds for the given sector.
I do follow the SIOC channel and saw this video yesterday.
There was little to no mention of public companies for this specific dividend use case. I felt the video was too technical and did not solve my purpose of simple strategy. These Maharatna and miniratna companies although are debt ladden but I dont see them failing in anyway given the purpose of these vehicles.
I am not at all looking for Dividend+Growth+Fundamentals from these stocks but only to meet the purpose. Eventually I would want to see my returns/dividends outgrow my initial investment
My idea is to spend little to no time on these stocks once invested for years and only focus on remaining 75% of my portfolio.
Except JSW steel and Vedanta all are PSU companies (major stake is with govt). Govt forces these companies to pay dividends so that govt get good revenue which they need to use for social welfare schemes.
Govt doesn’t have to pay tax for the dividend it receives (who are they going to pay, to themselves?) but everyone else has to pay tax at their peak income tax slab. It makes good sense if it is invested in someone’s name who doesn’t have an income like an house wife or low income person.
Has anyone noticed, the stock price falls more than the dividend amount on ex dividend date or after that. There’s no capital protection like FD, not saying FD is a good investment plan.
Dividend and DRIP made sense when there was dividend distribution tax paid by company and not by the investor.
Bharat 22 ETF does the same thing of buying PSUs and investing the dividend in the ETF. It is more diversified also.
Dividend aristocrat smallcase buys quality companies with long history of uninterrupted dividend payouts with growth.
The NAV difference between growth and dividend option of a scheme will be the dividend and some operational cost related to paying it. Dividend is taxable the same way as equity dividends. Compounding is lost because of money taken out as dividend.
Reinvesting the dividend thus received in the same scheme will make you poorer by the tax you paid. Better to be with growth option of the scheme.