Team-BHP > Shifting gears


View Poll Results: Stocks as a percentage of my net assets are -
0 - 25% -- I'm like the most conservative Indians. I love FDs. 396 32.27%
26 - 50% -- I have a few stocks. 549 44.74%
51 - 75% -- I'm an active trader. 201 16.38%
76 - 100% -- Hey, I'm an i-banker!!! 81 6.60%
Voters: 1227. You may not vote on this poll

Reply
  Search this Thread
1,442,391 views
Old 29th July 2022, 20:21   #4951
BHPian
 
Join Date: Jan 2016
Location: TN37/66
Posts: 100
Thanked: 394 Times
Re: Do you play the stock market

Quote:
Originally Posted by thirugata View Post
And for all those, who think dividend is profit sharing by the company, check the following example:
Lets assume company holds 1,00,000 Cr in equity.

CMP 100 RS, 4 Rs divided.

What you get as a share holder 4 Rs in bank account 96 Rs become CMP. Net addition to your asset = 0.

For company: 96,000 Cr in equity, 4,000 Cr in bank account.

Company gets to reduce their equity position without selling the stake and they call it profit sharing.

I leave it to your intelligence to decide how a company reducing its equity position can be a positive thing.

I think you are mixing up Market Cap and Equity. CMP changes without any rhyme or reason and it has no real basis as to the underlying value of a company. On the other hand Equity is Share Capital + Accrued Surplus. A company does not pay dividend out of it's equity but from it's earnings. It may reduce the amount going to surplus but it does not reduce equity.

For e.g. if a company has Equity of 100000Cr and it earns 10000Cr that year. Let's say it decides to pay 4000Cr in dividends and credit the rest to surplus. Then the equity of the company is 106000Cr and not 96000Cr. It could have been 110000Cr if the company chose not to pay the dividend.

Let's say there are 1000Cr shares outstanding and no intangible assets, then the Book Value has gone from 100 (100000Cr/1000Cr) to 106 (106000Cr/1000Cr).

Market price on the other hand is usually several multiples of book value and if the market decides to value the stock lower by whatever number the dividend is, it still doesn't change the absolute value of the company which is the stockholder's equity or roughly book value. Just my 2paise!!!
green_ninja is offline   (8) Thanks
Old 29th July 2022, 21:19   #4952
BHPian
 
thirugata's Avatar
 
Join Date: Nov 2021
Location: Mangalore
Posts: 275
Thanked: 2,163 Times
Re: Do you play the stock market

Quote:
Originally Posted by green_ninja View Post
I think you are mixing up Market Cap and Equity. CMP changes without any rhyme or reason and it has no real basis as to the underlying value of a company. On the other hand Equity is Share Capital + Accrued Surplus. A company does not pay dividend out of it's equity but from it's earnings. It may reduce the amount going to surplus but it does not reduce equity.

For e.g. if a company has Equity of 100000Cr and it earns 10000Cr that year. Let's say it decides to pay 4000Cr in dividends and credit the rest to surplus. Then the equity of the company is 106000Cr and not 96000Cr. It could have been 110000Cr if the company chose not to pay the dividend.

Let's say there are 1000Cr shares outstanding and no intangible assets, then the Book Value has gone from 100 (100000Cr/1000Cr) to 106 (106000Cr/1000Cr).

Market price on the other hand is usually several multiples of book value and if the market decides to value the stock lower by whatever number the dividend is, it still doesn't change the absolute value of the company which is the stockholder's equity or roughly book value. Just my 2paise!!!
So as per you, when company gives 4 rs dividend and stock price pre devidend was 100, post dividend you get 104? As far as I know stock market it becomes 96+4.
If it doesn't become 104, whom did the company share the profit with? As your 100 rs remains 100.
And what I said is value of equity company holds, that's the companies share of total market cap.
That is total no of shares held by company x CMP.
So that value post dividend gets reduced by dividend amount x no of stocks company holds.
There are 2 ways a company or you can do partial booking of profit so that you move money from stock market to your account.
Sell stake or distribute dividend.
thirugata is offline  
Old 29th July 2022, 21:39   #4953
BHPian
 
Join Date: Jan 2016
Location: TN37/66
Posts: 100
Thanked: 394 Times
Re: Do you play the stock market

Quote:
Originally Posted by thirugata View Post
So as per you, when company gives 4 rs dividend and stock price pre devidend was 100, post dividend you get 104? As far as I know stock market it becomes 96+4.
If it doesn't become 104, whom did the company share the profit with? As your 100 rs remains 100.
And what I said is value of equity company holds, that's the companies share of total market cap.
That is total no of shares held by company x CMP.
So that value post dividend gets reduced by dividend amount x no of stocks company holds.
There are 2 ways a company or you can do partial booking of profit so that you move money from stock market to your account.
Sell stake or distribute dividend.
Let me rephrase my thought - CMP moves up and down several times during the course of trading everyday. Is the company declaring a dividend or buying back shares that many times a day?

According to you, when the CMP drops by "Rs. 4" after declaration of a dividend, does it stay there till the next earnings call or does it move back up or go down further? Why?

CMP does not change exactly by the amount of the dividend as you claim but by whatever the mood of the market is, at that particular moment in time. Dividend has no correlation to CMP.
green_ninja is offline   (3) Thanks
Old 29th July 2022, 22:01   #4954
Team-BHP Support
 
SmartCat's Avatar
 
Join Date: Jun 2007
Location: Bangalore
Posts: 6,334
Thanked: 42,098 Times
Re: Do you play the stock market

Quote:
Originally Posted by thirugata View Post
So as per you, when company gives 4 rs dividend and stock price pre devidend was 100, post dividend you get 104?
Quote:
Originally Posted by green_ninja View Post
CMP does not change exactly by the amount of the dividend as you claim but by whatever the mood of the market is, at that particular moment in time. Dividend has no correlation to CMP.
Both you and thirugata are right here. The fall is primarily visible in companies that pay very large dividends. RIL has a dividend yield of 0.28%, so you won't notice it. Coal India has a dividend yield of 8%, so you will notice a drop in stock price when it goes ex-dividend. Of course, the drop in coal india won't be exactly 8%. The exact fall % depends on buy/sell interest in that stock on that day, but it will still be significant.

But why will coal india fall big on ex-dividend date? Because of arbitrageurs. There are market participants who buy coal India stock when dividend is announced. They will invest Rs. 10 cr (for example) and pocket a cool 8% of that amount (dividend yield) within a month. After collecting the dividend, he will sell the shares on ex-dividend date. So selling pressure from arbitrageurs results in fall in stock price on ex-dividend date. This strategy is called 'dividend stripping' and is primarily done to save tax (and sometimes extra returns). You can read more about it here:
https://en.wikipedia.org/wiki/Dividend_stripping

However, as you might have imagined, stocks like coal india zooms up when dividend is announced. Because arbitrageurs will buy Coal India. Example:

Coal India price before dividend announcement: Rs. 92
Dividend announcement: Coal India price slowly moves up from Rs. 92 to Rs. 100 (because of buying interest from arbitrageurs)
Ex-Dividend date: Big fall in price. Stock might trade at Rs. 92 again.

So net net, the effect of dividend payout on stock price is zero, but long term investor is still pocketing 8% returns in the form of dividend. It was Rs. 92 before dividend announcement, it went to Rs. 100 but then fell to Rs. 92 now. So there will be a short term gyration but stock price eventually depends on long term buyer interest in the stock.

Last edited by SmartCat : 29th July 2022 at 22:08.
SmartCat is online now   (14) Thanks
Old 30th July 2022, 07:09   #4955
BHPian
 
thirugata's Avatar
 
Join Date: Nov 2021
Location: Mangalore
Posts: 275
Thanked: 2,163 Times
Re: Do you play the stock market

I got 2 versions of answer to this, pick the one that suits.

Answer 1:

Quote:
Originally Posted by green_ninja View Post
Let me rephrase my thought - CMP moves up and down several times during the course of trading everyday. Is the company declaring a dividend or buying back shares that many times a day?
Do you play the stock market-yekabhua.jpg

I thought CMP gets decided by SEBI during quarterly result and does not change till the next result. How stupid of me.


Quote:
CMP does not change exactly by the amount of the dividend as you claim but by whatever the mood of the market is, at that particular moment in time. Dividend has no correlation to CMP.
Now since we have clearly established that I dont know anything about stock market, let me spend this weekend learning.
Can you kindly tell me what happens when a stock goes "Ex - Dividend" ?

Answer 2:

I love it when I meet people whose thoughts are different than mine in stock market.

Quote:
Originally Posted by green_ninja View Post
Let me rephrase my thought - CMP moves up and down several times during the course of trading everyday. Is the company declaring a dividend or buying back shares that many times a day?
Answering your question why CMP changes, its because 2 people with 180 degree opposite views about a stock & price come to market and both think they are right. And thats when a trade happens and the CMP changes. There is a saying stock market, "Its the difference of opinion that keeps the horse race going".

So when I see someone disagrees with me, it makes me happy that not everyone thinks same in stock market. That means there will be price movement next in market and that helps me take my intraday trades or helps me reach the targets I have set on my BTST or positional trades.
thirugata is offline   (1) Thanks
Old 30th July 2022, 08:36   #4956
BHPian
 
thirugata's Avatar
 
Join Date: Nov 2021
Location: Mangalore
Posts: 275
Thanked: 2,163 Times
Re: Do you play the stock market

Disclaimer:
1) This is a bit lengthy post, so be a bit patient.
2) We are TBHP, we are here to share what we know and not to prove that others don’t know anything.

Note to mods: Not using multi quote as this is a long post and not really a reply to anyone’s post.

Let me share with you what made me study this dividend pay-out and what exactly was my findings.


Quote:
Originally Posted by SmartCat View Post
The fall is primarily visible in companies that pay very large dividends. RIL has a dividend yield of 0.28%, so you won't notice it.
I am quoting you because this is one of the reason for people to not notice when a stock goes ex-dividend. The other reason is if you don’t watch the price on daily basis. I belonged to this category.
Those were the days when I used to buy stocks based on fundamental analysis. I cant read balance sheet as I don’t come from financial background, so I used to base my study on events/news. I used to try and study the long term implications of major events/news to pick the stocks. This went on for a decade +.
Then came 2018, I started buying stocks based on technical analysis. From then onwards, none of the fundamental factors have influenced my stock picking. I make my investment calls based on weekly and monthly charts and my trading calls come from chart in smaller time frame.

Now coming to why I did study about dividend pay-out.
I had taken a swing trade and it had ticked all the boxes as per trading plan. But it hit my stop loss the next day morning and few days later went on to hit the target I was expecting.
Hitting of stop loss is not new to me, generally law of averages makes sure that you win some trade and you lose some.
I don’t bother much about the trades which hits stop loss and goes in the opposite direction I was expecting. But when a trade gets stopped out and goes on to achieve the target, then I study it to see if I can fine tune my trade plan. So when I did study the reason for hitting stop loss in this case I realized the stock went ex-dividend. And this is when I observed what exactly happens when dividend is paid to investor. Hence realised that you don’t get anything extra but its part of the same pie you had the previous day.
And I promptly made changes to my trading plan to avoid stocks which are about to go ex-dividend.

This made me go further and try and understand why dividends are paid hence I arrived at the conclusion which I have explained in previous posts.

Now let me go one step further and demonstrate why dividend pay-out is not in favour of long term investors with an example.

Lets take an example of 2 stocks A & B, both growth oriented stocks with brilliant future.
Stock A gives 4 Rs dividend, stock B does not & investor puts that 4Rs in FD.
Both stocks double in next 4 years living true their growth potential. At the end of 4 years, return from stock A = (96*2) +4.3 (FD return) = 196.3 whereas return from B = 100*2 =200.
And this is the reason people who believe in growth of the company reinvest the dividend return back into the same stock because they know its beneficial to stay invested instead of taking that chunk from the pie out. You had to do this because you were forced by the company to take that profit out in the name of dividend. You don’t have the option say no to dividend.
This made me conclude why companies take dividend out as it helps them to lighten their equity position without actually selling any stake (which is actually more tedious and not so investor friendly move). And this has been sugar quoted and packaged as “profit sharing” and called long term investor friendly move where as the real beneficiary of this is the promoter.

Now if anyone has a contra view to this, please explain with figures and fact, happy to learn.

Last edited by thirugata : 30th July 2022 at 08:38.
thirugata is offline  
Old 30th July 2022, 10:04   #4957
Team-BHP Support
 
SmartCat's Avatar
 
Join Date: Jun 2007
Location: Bangalore
Posts: 6,334
Thanked: 42,098 Times
Re: Do you play the stock market

Quote:
Originally Posted by thirugata View Post
Stock A gives 4 Rs dividend, stock B does not & investor puts that 4Rs in FD. Both stocks double in next 4 years living true their growth potential. At the end of 4 years, return from stock A = (96*2) +4.3 (FD return) = 196.3 whereas return from B = 100*2 =200. Now if anyone has a contra view to this, please explain with figures and fact, happy to learn.
Since you are still using Rs. 96 & Rs. 100 numbers, I know why you are confused.

1) I suspect that you did not read my post no. 4954 fully. You quickly glanced the first few lines and entirely skipped the second half.
2) As trader with very short term trading horizon, you are noticing Rs. 100 stock falling to Rs. 96 on ex-dividend date. But an investor would have noticed the rise in stock price from Rs. 96 to Rs. 100 after announcement of dividend.

If you disagree with my post no. 4954, please Google "what happens when a stock goes ex-dividend". But when you click on a link, do not stop reading at "stock will fall equivalent to dividend amount". Please read an article in its entirety.

Example article:
https://www.investopedia.com/article...ock-prices.asp

Quote:
The declaration of a dividend naturally encourages investors to purchase stock. Because investors know that they will receive a dividend if they purchase the stock before the ex-dividend date, they are willing to pay a premium. This causes the price of a stock to increase in the days leading up to the ex-dividend date. In general, the increase is about equal to the amount of the dividend, but the actual price change is based on market activity and not determined by any governing entity.
You are missing the part in bold. So in your stock A/B example, both the stocks were at Rs. 100. It's just that stock A briefly went to Rs. 104, and then fall back to Rs. 100. And if both doubled, both are at Rs. 200. But investor in a stock paying dividend is better off, because he got an extra Rs. 4 per year as dividend.

Last edited by SmartCat : 30th July 2022 at 10:21.
SmartCat is online now   (5) Thanks
Old 30th July 2022, 10:20   #4958
BHPian
 
thirugata's Avatar
 
Join Date: Nov 2021
Location: Mangalore
Posts: 275
Thanked: 2,163 Times
Re: Do you play the stock market

Quote:
Originally Posted by SmartCat View Post
Since you are still using Rs. 96 & Rs. 100 numbers, I think I know why you are confused.

1) I suspect that you did not read my post no. 4954 fully. You quickly glanced the first few lines and entirely skipped the second half.
2) As trader with very short term trading horizon, you are noticing Rs. 100 stock falling to Rs. 96 on ex-dividend date. But a longer term positional trader with 1 month horizon or an investor would have noticed the rise in stock price from Rs. 96 to Rs. 100 after announcement of dividend.

If you disagree with my post no. 4954, please Google "what happens to a stock when a stock goes ex-dividend". But when you click on a link, do not stop reading at "stock will fall equivalent to dividend amount". Please read an article in its entirety.

Example article:
https://www.investopedia.com/article...ock-prices.asp



So in your stock A/B example, both the stocks were at Rs. 100. It's just that stock A briefly went to Rs. 104, and then fall back to Rs. 100. And if both doubled, both are at Rs. 200. But investor in a stock paying dividend is better off, because he got an extra Rs. 4 per year as dividend.
1) I am sticking to same example as it is simple to explain.
2) I never said stock does not go up after dividend payout is done.
3) Glad you agree that stock briefly goes to 96, which was the point I was making all through that dividend paid is not profit shared, its from the stock you were holding. What it does after that has nothing to do with dividend paid.
4) In the A/B example, because the 4 Rs was dividend paid it was not part of the next up move ( as as you assume I dont think stocks dont move up after dividend is paid, since you can see in this example I have mentioned stock doubled.)

Now let me ask you what is the difference between company paying you 4 Rs dividend or you selling 4 Rs worth stock ? Answer to that will clarify what I was saying.

One more aspect I forgot to add in the previous post. That is about the income tax.

This was a loophole not so long ago which was exploited by companies to "take profit home" in the name of dividend payout as dividend payout was not taxed. If they had chosen to sell stake, that would got taxed. Now that loophole has been blocked.
My guesstimate, you will see lesser and lesser companies pay dividend going forward because there is no edge of tax saving because of this any more.

There will be no further discussion about this from my side as I feel I am already repeating a lot of stuff again and again and any further note from me will add no value.

I rest my case.
thirugata is offline  
Old 30th July 2022, 10:27   #4959
Team-BHP Support
 
SmartCat's Avatar
 
Join Date: Jun 2007
Location: Bangalore
Posts: 6,334
Thanked: 42,098 Times
Re: Do you play the stock market

Quote:
Originally Posted by thirugata View Post
I never said stock does not go up after dividend payout is done.
Before, not after. Stock goes up before dividend payout. That is what you are missing.

Quote:
Glad you agree that stock briefly goes to 96, which was the point I was making all through that dividend paid is not profit shared, its from the stock you were holding
Not same. A Rs. 100 stock briefly goes to Rs. 104 and falls back to Rs. 100. Or a Rs. 96 stock briefly goes to Rs. 100 and falls back to Rs. 96.

Last edited by SmartCat : 30th July 2022 at 10:41.
SmartCat is online now   (3) Thanks
Old 30th July 2022, 12:11   #4960
BHPian
 
Join Date: May 2020
Location: Bangalore
Posts: 96
Thanked: 152 Times
Re: Do you play the stock market

Quote:
Originally Posted by green_ninja View Post
CMP does not change exactly by the amount of the dividend as you claim but by whatever the mood of the market is, at that particular moment in time. Dividend has no correlation to CMP.
Agree with you 100%. The share prices are decided based on the interaction of the forces of supply and demand. The more the demand for the shares, the higher the prices goes. The demand may be on the basis of several factors that have already been discussed threadbare. I follow the principle "take your money and run" when the going is good be it cum dividend price or ex dividend. This discussion has certainly raised some impassioned positions and some of the discussions are quite lively. Good to see.
Bsimhan is offline  
Old 30th July 2022, 13:10   #4961
Senior - BHPian
 
SilentEngine's Avatar
 
Join Date: Jan 2008
Location: KA19,KA04
Posts: 1,167
Thanked: 735 Times
Re: Do you play the stock market

Some interesting discussion on how the company should 'share' the profits with shareholders!

Quote:
Originally Posted by SmartCat View Post
Bonus shares/split shares is just cutting one big pizza slice into 2 smaller slices.
Technically, there's a difference right?
Stock split - results in reducing the face value of the share in the ratio of the split. 1:1 split means Face value is halved.
Bonus - face value remains the same, and results in increasing total equity capital in company's books.

In both cases, the number of shares increases in the ratio. But, importantly in case of bonus, company uses the cash from reservers to issue new shares.

Net effect on CMP may be same in both, but issuing bonus is actually a way of captitalizing the surplus cash.

Am i right in above?

Quote:
Originally Posted by thirugata View Post
And for all those, who think dividend is profit sharing by the company, check the following example:
Lets assume company holds 1,00,000 Cr in equity.

CMP 100 RS, 4 Rs divided.

What you get as a share holder 4 Rs in bank account 96 Rs become CMP. Net addition to your asset = 0.

For company: 96,000 Cr in equity, 4,000 Cr in bank account.

Company gets to reduce their equity position without selling the stake and they call it profit sharing.

I leave it to your intelligence to decide how a company reducing its equity position can be a positive thing.
Like green_ninja said above, when you say company reducing equity, i think what you are really referring to is the market cap that gets reduced.
If by company, if you mean promoters, then their equity share doesn't get reduced when issuing dividend (like it would when they sell stake).

One can understand why a short term trader or speculator may not like a company issuing dividend because of these reasons:
1. Because of fall in CMP because of dividend, any price targets one had will take longer to reach.
2. Taxability - Dividends are taxed at individual slab rates, whereas LTCG or STCG rates are lower.

Last edited by SilentEngine : 30th July 2022 at 13:11.
SilentEngine is offline  
Old 30th July 2022, 13:39   #4962
SLK
Senior - BHPian
 
SLK's Avatar
 
Join Date: Feb 2004
Location: DL XX XX XXXX
Posts: 1,634
Thanked: 1,010 Times
Re: Do you play the stock market

Quote:
Originally Posted by SilentEngine View Post
but issuing bonus is actually a way of captitalizing the surplus cash.

Am i right in above?
Not really, bonus is paid of out accumulated reserves (generally representing past profits). This has no linkage to cash, it is just surplus reserve balances, which may have been even invested in long term assets like plant or software, etc.

In theory, when reserve balances go down, the Company's theoretical ability to distribute dividend out of past accumulated profits also is reduced, which may say that the bonus is a means to invest in non-distributable assets of the Company.

So in theory again, a company which has its price based on dividend payouts as its business model isn't all that re-investable, will lose value because of bonus, while another company which gets its value from its future ROA/E expectation, may gain value due to bonus issue.

Hope it made some sense.
SLK is offline   (1) Thanks
Old 30th July 2022, 13:52   #4963
BHPian
 
Vasuki's Avatar
 
Join Date: Jul 2011
Location: Venice of East
Posts: 784
Thanked: 1,283 Times
Re: Do you play the stock market

Quote:
Originally Posted by SmartCat View Post
You have to look at debt to equity ratio rather than debt in absolute numbers. I prefer looking at interest costs divided by Operating profit. If it is more than 25%, I avoid such companies.


The company should have a long track record of paying substantial dividends. Not just one year. One glance at screener.in gives you a company's 10 year dividend payment history. Eg: TCS
In the same yardstick would you consider the below-attached company worth investing? They have been giving decent dividends last 10 years. The company is Geojit Financial Services Ltd.

Also please elaborate on the first point regarding interest costs/Operating profit.
Attached Thumbnails
Do you play the stock market-geojit-divedend-payout.jpg  


Last edited by Vasuki : 30th July 2022 at 14:01.
Vasuki is online now   (1) Thanks
Old 30th July 2022, 14:28   #4964
BHPian
 
thirugata's Avatar
 
Join Date: Nov 2021
Location: Mangalore
Posts: 275
Thanked: 2,163 Times
Re: Do you play the stock market

Ok, for the last time let me explain this again (Even though I am repeating the most of it).
May be me using the term CMP might have created the confusion in some.
For dividend, 2 days are important, cut-off date and pay-out date.
Cut-off date: if you own the share on this date you are eligible for dividend.
Now lets talk about what happens on the pay-out date, at the opening, the new value of the stock is calculated based on the previous day closure rate was. And that rate is PDC rate – dividend amount and that becomes the starting point of that day which I referred as CMP.
Now for those who still thinks dividend pay-out is profit sharing, how much did you get extra?
Answer is 0, because what comes to your account as dividend is deducted from the previous day’s stock’s closure value. So this is simply money being transferred from your equity basket to cash basket.
And this is exactly what happens irrespective of you are trader, investor, HNI, DII, FII, promoter, President of a country, Charlie Chaplin or whatever… So no profit is shared by anyone to anyone via dividend pay-out.

Now going back to my 100 Rs and 4 Rs example
So let’s say you have 1000 stocks and stock closed at 100 Rs the previous day.
Total value was 1000* 100 = 1,00,000
Next day morning, 1000*96 = 96,000 in your equity and 4000 in bank account.
If you don’t call this indirect way of profit booking, I don’t know what else call it.
This is the same that happens to promoter too. He pockets money without reducing his equity holding.
And for those who thinks that its good for long term investor because stock price moves once dividend announcement is made, please find better stronger fundamental reason to hold on to the stock than depending on this lame reason. Any move that happens because of a short term news should never impact a long term investor anyways. That holds good when dividend amount gets reduced from stock price or when stock moves up temporarily because dividend is declared.

And be it dividend, stock split or bonus issue, end result is nothing changes as a total sum for stock owner. Stop looking at these things from company perspective and see what does it add to your portfolio or pocket, and you will know what I am talking about.

In my opinion the only positive thing I would look at is when a promoter is happy to buy back, it generally happens when stock has corrected quite a bit, so not many want to participate. But if a promoter buys back share that shows he is confident about the company growth hence happy to increase his stake. Anything else is showcased to make people believe whatever they want.

Good luck with your investment guys… keep minting…

Last edited by thirugata : 30th July 2022 at 14:33.
thirugata is offline   (1) Thanks
Old 30th July 2022, 14:33   #4965
Team-BHP Support
 
SmartCat's Avatar
 
Join Date: Jun 2007
Location: Bangalore
Posts: 6,334
Thanked: 42,098 Times
Re: Do you play the stock market

Quote:
Originally Posted by SilentEngine View Post
But, importantly in case of bonus, company uses the cash from reservers to issue new shares. Net effect on CMP may be same in both, but issuing bonus is actually a way of captitalizing the surplus cash.
Quote:
Originally Posted by SLK View Post
In theory, when reserve balances go down, the Company's theoretical ability to distribute dividend out of past accumulated profits also is reduced, which may say that the bonus is a means to invest in non-distributable assets of the Company.
Bonus shares is just accounting jhumla. Not a single Rupee is moved about, so issuing bonus shares does not reduce a company's ability to pay dividends. When a company issues 1:1 bonus share, your dividend per share goes down. But you now own 2x shares and hence lower dividend per share is not a problem. Let's take a look at a company that has a history of issuing bonus shares. Eg: INFOSYS.

Name:  Screenshot_1.jpg
Views: 307
Size:  20.6 KB

Now go to www.screener.in and check the 'Balance Sheet' column for Infosys.

Do you play the stock market-screenshot_2.jpg

As you can see, the reserves amount is chugging along and trending upwards steadily. Only the share capital increases when bonus shares are issued.


Quote:
Originally Posted by Vasuki View Post
In the same yardstick would you consider the below-attached company worth investing? They have been giving decent dividends last 10 years. The company is Geojit Financial Services Ltd.
I own Geojit because of its long dividend history. But don't go overboard with investment into the stock. Brokerage business is highly dependent on bull markets and hence the stock is quite volatile. Think of it as a 'cyclical stock' - you have to buy low and sell high. It is not a 'buy and forget' stock.

Last edited by SmartCat : 30th July 2022 at 14:55.
SmartCat is online now   (4) Thanks
Reply

Most Viewed
Thread Tools Search this Thread
Search this Thread:

Advanced Search

Copyright ©2000 - 2024, Team-BHP.com
Proudly powered by E2E Networks