Investing Basics - Feel free to ask the most basic questions

sambandham82 · July 10, 2020, 7:10pm

Its given as 0.07%. Even vanguard is not 0.01%.

I mentioned i dont bother about a little tracking error.

Deepesh_Sao · July 11, 2020, 9:22am

Hello Experts !!

Three years of investing and I am yet unsure of people preferring to invest in Dividend stocks. What makes people really risk their heard earned capital for 5-7% of dividend in Equity markets instead of FDs. All high paying dividend companies do NOT generate any substantial returns even for decades. NTPC, Coal India, SBI, ITCs of the world are prime examples. Even if they give 3-5x after a decade I don’t think it is just good enough.

To substantiate this point further, Berkshire Hathaway has never ever given dividends in their life except one which Mr. Buffet famously jokes he must gone to the washroom when it was decided.

Someone will have to do a good job to change my perception here.

Regards
Deepesh

Himanshu_Nigam · July 11, 2020, 9:36am

My Mistake. 0.07% is miniscule. And my point was not related to tracking error, it was related to how tough it will be for you to manage the stocks in the same ratio.

Unless you are looking to save on 0.07% expense ratio there seems to be no other reason not to use an ETF.

sarthakkumar19_ · July 11, 2020, 2:19pm

Hello,
Shemaroo entertainment has not announced q4, 20 results till now while some companies have started announcing next quarter results also. Is there any last date upto which a company must announce quarterly results.

Thanks

Abhishek16 · July 11, 2020, 8:12pm

@Deepesh_Sao

Dividend paying companies are the only companies that actually return substantial amount of your investment directly back to you.

When you buy a company’s shares, there are only two ways to earn money from your investment-

The company shares its profits with you in the form of dividends/buybacks etc.
You sell your shares to someone else for an even higher amount (capital gains from trading)

Now, when you sell your shares to a second person for a higher amount why you think that 2nd person is buying it from you at that elevated price ? So that he/she can sell it to someone else for even higher amount ? Thats how ponzi schemes work, and unfortunately that is how a lot of people approach stock markets today. But that is not how stock markets (should) work.

If you think about the two points I listed above, it is because of the 1st one (or the future expectations of the 1st one) that 2nd (trading of stocks) exist in the first place.

The idea behind dividends may not be attractive to you, but it does appeal to a lot of participants including corporations that manage insurance, pension funds etc.

Lastly, dividend investing, growth investing, value investing, these things are not mutually exclusive. So if I am looking for a good dividend paying company, then “dividend yield” will not just be my only criteria. I would also look towards its consistency, company’s dividend history, working capital requirements and debt, and overall future prospects of the company.

valuelearner · July 12, 2020, 12:37am

There are two scenarios while investing in an high dividend paying company one where you invest only for dividend (not a very ideal scenario) and other where you invest in the company because you have a view that the along with dividend the company can give you good returns.ITC’s dividend policy may be impacted by following reasons:

ITC on one hand has high cash generating cigarettes business and over the years the company has used this cash flow to set up other businesses. These businesses have also started generating some cash. The management probably does not see a better avenue to deploy this additional cash generated and are returning to share holders. An alternative could be to do a lot of diworsification and further deteriorate the share value.

The second reason could be the Govt and LIC holding in the company. Considering overall ownership tussle and concern regarding BAT increasing their stake the management will try to ensure govt interest in the ownership. There is no better way to do that than by paying dividends.

Disc : Invested

Yumnam_Chandrakumar · July 12, 2020, 4:19am

Sir how to know the moat of a company in simpliest way and how to forcast future growth of a company for valuation

sahil_vi · July 12, 2020, 4:34am

But the FD would not have grown even 1%. Or anything more than 0%. This makes dividend investing very attractive for people specially those who treat the dividend as a steady secondary stream of income and plan to use it as a source of income for retirement. Also note that 5-7% yield on entering a stock is great. You will get higher yield (on cost basis) when the dividends grow every year, as the company is growing. After 10 years, the dividend yield would be 15-21% for the same cost basis. Isn’t that great? So if one wants to retire at 60 and earn off of 1 lakh per month, one needs only 60 lakhs at age 50 and if one invests it in good dividend paying company, one’ll earn 12 lakhs in dividends by the time one is 60. Added benefit: if and when one dies, they leave behind an appreciating asset for their family. The value of that 60 lakhs would be triple every 10 years so maybe 3.6cr by the time one is 70 years old. That seems like a good financially sound investment decision.

Deepesh_Sao · July 12, 2020, 5:35am

Thank you for your reply Abhishek,

Now I am fully convinced that direct investing for dividends is totally not worth it atleast for Retail investors.

For me, high dividend yields means either the Company doesn’t know what to do with their extra profits generated or they simply do not have any substantial opportunities in the market to reinvest the surplus.

Let me further substantiate this point by taking an example of ITC, I won’t go into their return performance it is abysmal and least to talk about but recently they changed their dividend policy, they now share 80-85% via dividends.

Now a sin goods selling Company who aspire to be a giant in FMCG should have gone for inorganic growth in a very aggressive manner. What would a retail investors gain out of dividend who manage to buy may be 100-500 shares max. Some 5k Rs. These are with retail investors perspective are peanuts.

But thanks for your reply.
Deepesh

Deepesh_Sao · July 12, 2020, 5:50am

Thank you Value Learner,

Shouldn’t they come up with a buyback then if they are concerned about BAT hostile acquisition?

Zero promoter holdings also makes the matter worse. GOI must divest their stakes via OFS gradually.

A temporary downward in market value is still okay but they should have chosen to aggressively chosen inorganic route.

Thanks you once again for your time mate !!

Regards
Deepesh

Deepesh_Sao · July 12, 2020, 6:02am

Thanks Sahil for your time,

I couldn’t understand what you meant by “But the FD would not have grown even 1%. Or anything more than 0%”, Fixed deposits have given 7-8% in the last decade without any headache of deterioration of the Company fundamentals via Saving Banks instruments.

Now, according to me if you are investing with “hope” then you aren’t really investing. Peopl who invest based on performance are kept well.

Equities are a risky asset class. You are giving a timeline of 30 years to make 3.6 cr. onwards, I mean I am not sure how to react on that. All these laggards still may vanish from the scene or just become incompetetive.

GOI has allowed private mining ,Coal India is screwed I know for sure. NTPC still is not working towards modernizing it’s power capacities or for that matter in futuristic Renewable energy, If you ask me NTPC should have by now forayed into Nuclear Power generation by now, but these GOI enterprises just do not have any say to their vision. Another major dampener is high equity base, the free float is so very high that it take a generation to absorb the excess capacity, these are fertile grounds for speculators and operators. They have the financial muscle to fluctuate the prices post receiving dividend. A 5 -10 Ra dividend with 30 Rs price correction doesn’t look a smart investment to me all mate !!

But I understand people are there who believe in such investing, I respect that.

Thank you for your time.
Regards
Deepesh

sahil_vi · July 12, 2020, 6:10am

We’re talking about the growth of principal. Not the interest earned. The principal does not grow for Fixed deposits. In Equity investments, you get the interest (dividend) and growth of principal.

One could make that argument for almost anything. even with FD, the “hope” is that the bank does not fail. Owning a diversified set of large well-run profitable shareholder friendly companies paying high dividends is as far away from hope as is possible in equity investing. Of course on a relative basis, FDs are much lower risk than equity as an asset class which is why equity investing is not for everyone. But imo it would be unfair to classify equity investing as some kind of “hope” investing.

I would not invest in a GOI company because the shareholder-wealth maximizing incentives are not present. If i were to do dividend investing, I’d look for large private companies which are “likely” to last 3-4 decades. Consider checking out this youtube channel: https://www.youtube.com/channel/UCbta0n8i6Rljh0obO7HzG9A. He’s building a dividend growth portfolio and talks about the why, the how and all such questions.

Totally Agreed, to each their own. Cheers.

sarthakkumar19_ · July 12, 2020, 3:17pm

Hello,
Shemaroo hasn’t declared q4 results as yet. I read on bse website that results must be declared within 45 days of end of quarter. [Screenshot_2020-07-12-17-41-36-841] Can someone please explain.
Thanks

Nagendran_Krishnamoo · July 12, 2020, 4:39pm

Government has given extension for publishing Q4 2020 result till end of July. This is just one time exemption given because of Covid-19 crisis. Shemaroo isn’t the only company delaying the declaring of Q4 results

SOHAN · July 12, 2020, 6:40pm

Can any one suggest where can I find education and historical background of management of micro cap companies

sahil_vi · July 13, 2020, 7:27am

You can google for the founders and management and find their LinkedIn profiles and any other professional network profiles. Their college websites might also have their names and this might also show up on Google search.

Another approach is to approach employees of the company on LinkedIn or other networks and scuttlebutt for information talking to them.

Manojlion · July 19, 2020, 5:58am

Hi all,

Hope you all are doing good

I am trying to create my own ‘momentum’ portfolio and I have gone through various sources for the same

Just a naive question, from where can we download the daily stock prices data for last 1 year of the top 500 companies @dineshsairam

Varij · July 19, 2020, 2:35pm

Hi all,
In 2019 annual report Westlife Development shows an item under Other current Liabilities named Liability for capital expenditure

May anyone please tell me what exactly is this item and why it is classified under Current Liabilities?

Nagendran_Krishnamoo · July 19, 2020, 8:30pm

I use google spreadheet. https://support.google.com/docs/answer/3093281?hl=en

sambandham82 · July 19, 2020, 11:18pm

Dividend is not the only way to return cash to shareholders. Berkshire had done plenty of buybacks without reinvesting.