[Transmission]

Originally Posted by SmartCat

It is unfair to shareholders who are not aware of what a buyback is.

And dividends are unfair to investors who dont want a forced tax event. As it stands, dividends are the absolute worst way to return money back to general investor - it incurs more losses between the cup and the lip - Dividend Distribution Tax (DDT).

Sure I am taking an extreme stance here, but then again to consider dividends as better than share buyback is disingenuous. For every rupee out there, for a general investor, dividends are always worse than a share buyback (or where possible, reinvestment) - first its the DDT, and then its the tax treatment of dividend income in the hands of the recipient.

Dividends and share buybacks are for different kind of investors - they both have different reasons to exist. Dividends are for old-school investors who prefer a cash out (even when they always had the ability to cash out irrespective of dividends anyways). Share buybacks are a more advanced trick which is more efficient under the current tax regime.

I like more of my returns actually returned to me, as opposed to the tax man, so I prefer buy backs over dividends. As it stands I look poorly at companies that want to return capital to the shareholder but use dividend as the means to do it.


(The poll options are poorly named. The percentages all are fine obviously, but the language is all over the place: 51-75% doesn't make one a trader, nor do many investment banking officials hold anywhere near 75% (let alone 100%) stocks as a percentage of their net worth. I hold over 50% of my net worth as equity - but not just stocks - its mostly index funds. Over time I expect to have ~70 of my NW - excluding any house I live in - to be in equity)

[SmartCat]

Originally Posted by Transmission

I like more of my returns actually returned to me, as opposed to the tax man, so I prefer buy backs over dividends. Share buybacks are a more advanced trick which is more efficient under the current tax regime.

Govt introduced something called Buyback tax in 2019. If GAIL wants to do a stock buyback of Rs. 1,000 cr, they have to set aside Rs. 1250 cr. That is, 25% goes to Govt as buyback tax. It is almost equivalent to having 25% TDS on stock buyback.
https://economictimes.indiatimes.com...w/89236772.cms

As it stands, dividends are the absolute worst way to return money back to general investor - it incurs more losses between the cup and the lip - Dividend Distribution Tax (DDT). first its the DDT, and then its the tax treatment of dividend income in the hands of the recipient.

DDT has been abolished. You can read about it too in the above ET article

So in the above GAIL example, they could have paid Rs. 1,250 cr as dividend (instead of paying Rs. 250 cr to tax man). Previously, there used to be almost 20% DDT (incl cess and what not). Now that has been abolished. So investors get more money in their hands as dividends than before.

So the current dividend tax regime is more 'progressive'. The rich pay more tax and "poor" (relative term) less or even zero.

(The poll options are poorly named. The percentages all are fine obviously, but the language is all over the place:

hehe! This thread (and poll) was created in the year 2005!

[Gansan]

Can we buy and accumulate ITC shares even at current (~ Rs 300) prices? Is it a good idea?

I already own a thousand shares which I bought at an average Rs 220 each.

Also I am mainly interested in subscribing to their hotel/IT division hive offs, if and when they happen. Any opinions about that?

[amoghchaphalkar]

Fascinating discussions on dividend vs buyback

The way I look at it:

• Dividend = Your employer paying you a cash bonus for a job well done
  
• Buyback = Your employer e-mailing you a "Certificate of Achievement" for a job well done

It is up to you what you derive more pleasure from.

[SmartCat]

Originally Posted by Gansan

Can we buy and accumulate ITC shares even at current (~ Rs 300) prices? Is it a good idea?

As long as current dividend yield (3.79%) is greater than bank savings account interest rate (around 3%), a stock like ITC is a BUY.





Compare current dividend yield with risk free returns to evaluate whether a stock is trading at reasonable valuations. This makes stock valuation easy and instantaneous. For microcaps/smallcaps/midcaps, you should expect higher dividend yield though, say 4 to 6% (equal to FD returns). That's why dividend yield is a core component of my screener.in settings - minimum yield requirements are higher for smaller companies.
https://www.screener.in/user/28210/

Advantage of looking at dividend yield and comparing it with bank returns is that it helps you time the markets. You will never buy at market peak when all stock prices are elevated. You will always buy during corrections (because stock falls and current dividend yield shoots up)

I already own a thousand shares which I bought at an average Rs 220 each. Also I am mainly interested in subscribing to their hotel/IT division hive offs, if and when they happen. Any opinions about that?

The news of ITC hiving off IT/Hotel division might boost ITC shares temporarily. But longer term, it will be a non-event for your portfolio. Because after the demerger, ITC will start falling back. So demerger is beneficial only for shorter term investors or a special situation mutual fund, who have the ability to enter and exit at the right time.

Now the bull case scenario for ITC Infotech is a marketcap of Rs. 25,000 cr (ITC mcap is 375k cr). So best case scenario is that you will get ITC Infotech shares worth Rs. 10,000 (approx). Even if this doubles in value over time, it is not enough to move your portfolio. So if you are bullish on ITC Infotech, just invest significant amount after listing.

[SLK]

Originally Posted by SmartCat

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.

I'm talking Companies Act, Payment of dividend rules sir, and out of past profits specifically. Practically, for profit making companies, it does not affect.

[Transmission]

Originally Posted by SmartCat

Govt introduced something called Buyback tax in 2019. If GAIL wants to do a stock buyback of Rs. 1,000 cr, they have to set aside Rs. 1250 cr. That is, 25% goes to Govt as buyback tax. It is almost equivalent to having 25% TDS on stock buyback.
https://economictimes.indiatimes.com...w/89236772.cms

DDT has been abolished. You can read about it too in the above ET article

So in the above GAIL example, they could have paid Rs. 1,250 cr as dividend (instead of paying Rs. 250 cr to tax man). Previously, there used to be almost 20% DDT (incl cess and what not). Now that has been abolished. So investors get more money in their hands as dividends than before.

Thanks, I wasn't aware the the DDT was abolished. That's a good move for the general investor (but not the buyback tax) .

Don't buybacks also offer the distinction between long and short term CG for the investors that choose to return their stocks? If they do, then I wouldn't club the 15% STCG with the buyback tax of 25% since the other option LTCG (the more likely option, if I may say so - since anyone holding a dividend stock is not generally expected to be short term investor into the stock) is 10% at max - but generally going to be covered at 0% under the 1L annual LTCG exemption.

While I can't (and don't) represent all investors, I'll personally still get less money with dividends - despite the abolition of DDT and introduction of buyback tax - considering a specific original sum available to the company to be returned to the investors, since I fall into the 30% bracket. So I'll continue to prefer buybacks - although my main reason/interest still remains the flexibility of when to realize the gains (as opposed to the smaller differences in the actual sum returned to me as an individual investor).

Also its really annoying to tabulate the dividends and split them to appropriate quarters at the time of paying tax. Zerodha doesn't have accurate dividend reporting, and neither does the IT-department website despite their claims of integration with exchanges and what not. I guess for people that use CA's that's not a point that matters.

hehe! This thread (and poll) was created in the year 2005!

I realized that well after the edit time had passed. Quite surprised to see such an old thread pop-up on the front page

[fordday]

What are the views in REC stock?

With a more than 12% Dividend yield it looks like cream. But some of the ratios are not so good. And its 50 DMA is still below 200 DMA. Whopping debt to equity ratio of 6.5%.

Are these dividend sustainable?
Is the govt bleeding these PSUs by asking for every thing as dividend?

[SmartCat]

Originally Posted by fordday

What are the views in REC stock?

If you are a long term investor, avoid PSU banks & financials. You will never know what kind of pulls and pressures the management faces to give loan approvals. Also, from financials, you cannot know what is the "true" NPAs (you have to take the management's word for it).

However, if you are a short term investor (< 3 yr holding period), you can dabble with it.

Whopping debt to equity ratio of 6.5%.

All banks and financials have high debt to equity ratio (4 to 12). After all, debt is the raw material for their business.

Are these dividend sustainable? Is the govt bleeding these PSUs by asking for every thing as dividend?

If a bank or financial institution has no problems raising debt, then can afford to pay large dividends from profit made. Eg:
https://www.business-standard.com/ar...1401468_1.html.

[whitewing]

Originally Posted by fordday

What are the views in REC stock?

With a more than 12% Dividend yield it looks like cream. But some of the ratios are not so good. And its 50 DMA is still below 200 DMA. Whopping debt to equity ratio of 6.5%.

Are these dividend sustainable?
Is the govt bleeding these PSUs by asking for every thing as dividend?

This is a lender to the power sector. Its lending book is predominantly to other PSUs (state/central).
While the power sector and the discoms are not exactly doing well, so there is a chance of defaults, but very likely that the Govt steps in and helps pay off those defaults.
Since this is a lender, please check the book value and more relevant ratios like quick ratio etc. to arrive at an assessment. The debt/Equity ratio does not give an indication of the heath of a lending company.

I've been invested in it since its IPO time, and I think the dividends by now has covered the prinicipal (not factoring the inflation).

[DDIS_RE650]

Is JK Tyre good to hold for next 10 Years, can it be multibagger?

[kavensri]

Recently one of my friends (who has been staying in US since last 20+ years) suggested me to invest in US stocks. He also suggested me to do it through vested.co.in. Has anyone done it through this portal? If so, could you please share your experience?

[NH08]

Originally Posted by fordday

What are the views in REC stock?
Are these dividend sustainable?
Is the govt bleeding these PSUs by asking for every thing as dividend?

From PSU stocks, you can expect good amount of dividend but not the price appreciation. Regarding government bleeding PSUs, it has given three choices to the profit making PSUs:

i) increase the capital expenditure,

ii) offer share buy back or

iii) give dividends.

Anyone or more of the above options will enrich the government coffers.

I had Coal India. I sold it recently in minor loss (on paper), but considering the dividends that it pumped into my bank account over the years, I made good profit. Now, dividends are less attractive as these are taxable.

Sector-wise, I am positive as the demand for electricity is to increase many fold in India. But REC being a PSU, I am slightly skeptical on how much it will go up.

Disclaimer: I have REC stocks.

[Gansan]

Originally Posted by SmartCat

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.

I wouldn't say that. Bonus share issue amounts to reinvesting the profits in the business intead of dividend pay out.

When bonus shares are issued share capital account goes up in the books. That money has to come from somewhere. So cash reserves account will go down by a similar amount. That can affect dividend paying ability. Chartered accountants can explain better.

[fordday]

Originally Posted by NH08

Sector-wise, I am positive as the demand for electricity is to increase many fold in India. But REC being a PSU, I am slightly skeptical on how much it will go up.

I have this same observation. Which companies can benefit from this expansion?