[SmartCat]

Originally Posted by thirugata

Adani needs money, Adani cant do FPO, so where does he dig in? a dividend of 67 Rs for NDTV share holders. So all those retails who might have 50, 100, 200 stocks will get enough dividend to go out for a breakfast or a meal in the weekend and Adani takes home a large chunk of money without reducing the stake in the company.

Article says TV Today Network. This company has nothing to do with either NDTV or Adanis



Anyway, long term investors who follow dividend yield/value strategy ignore companies that give 'special dividends' like this. They are only interested in companies that payout incrementally increasing dividends from incrementally increasing profits. Companies that dip into networth to pay dividends should be avoided.

[thirugata]

Originally Posted by SmartCat

Article says TV Today Network. This company has nothing to do with either NDTV or Adanis

Attachment 2414825

Anyway, long term investors who follow dividend yield/value strategy ignore companies that give 'special dividends' like this. They are only interested in companies that payout dividends from profits, not networth.

My bad, totally my mistake, confusing myself with NDTV and TV today. But one canl see on 13th feb, how the stock price will react when it goes ex dividend, compared with the previous day closure (10th feb), that will tell if 67 Rs profit was shared with investor or 67 rs was taken out from the previous day close.
That was the original point I was making, now since this value is significant, this will be clearly visible in the stock price movement.

[warrioraks]

I have always wondered why companies don’t announce the ex-dividend date retrospectively i.e. investors who owned the shares on a past date are the only ones eligible for dividend.

An ex-dividend date in the future leads to this entire pump & dump circus - where few people buy the share just for the dividend and cash out after the cutoff.

If TVtoday had just said that stockholders who were owning the shares on 1st Jan, 23 will get this Rs 67 dividend, it would have completely eliminated this volatility in its market price.

[SmartCat]

Originally Posted by warrioraks

An ex-dividend date in the future leads to this entire pump & dump circus - where few people buy the share just for the dividend and cash out after the cutoff.

It is called Dividend Stripping strategy to save/reduce taxes
https://en.wikipedia.org/wiki/Dividend_stripping

However, after change in taxation laws regarding dividends, I don't know how it is still lucrative for such traders to do dividend stripping.

[rx100]

Originally Posted by thirugata

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.

Companies not paying out dividends from share capital, rather from their profits, it’s a profit sharing with shareholders. And yes, share price gets adjusted with the dividend amount on the opening price of ex-dividend day.

In your example, 1L crore is the market cap of the company and that gets changed day by day, and that amount not shows in any accounting statement. But the profit generated can either be reinvested or distribute to the shareholders. For companies like ITC, they cannot reinvest huge profits to business every time, so they pay it out some 60% profit as dividends.

Advantages of dividend based investments are
1. You are sure that companies are generating genuine profit.
2. You will get a recurring return on your investment
3. Share price also gets appreciated over a period of time.

But there are cases like PSU companies where the profit always pay out as huge dividends since major shareholders are GOI and they want money, appreciation of share prices are very less in those companies.

[whitewing]

Originally Posted by warrioraks

...
An ex-dividend date in the future leads to this entire pump & dump circus - where few people buy the share just for the dividend and cash out after the cutoff...

If the pump and dump happens, the ones cashing out, will not be able to book losses for such trades (to the extend of the dividend) (there was an income tax provision to prevent that AFIK the holding period should be at least 3 months).
So, the pump and dump would not be productive if the tax man has a closer look.

But your idea of declaring a post ex-dividend date sounds quite good!

[sunilch]

Originally Posted by whitewing

But your idea of declaring a post ex-dividend date sounds quite good!

This is a big risk and red flag for the regulator and hence is unlikely to be taken. The promoters or management of the company could take advantage of the same as now they can decide/plan the date and change their holdings.

Future date is the correct way to declare dividends as it allows market participants to decide the right price for the stock based on the declared dividend and also efficient markets will adjust the stock price as soon as the information is available or the date passes. Market participants trying to influence the market is a given and they can influence a particular stock only to a limited extent. Compared to say a few board members who have larger impact.

[thirugata]

Originally Posted by rx100

Companies not paying out dividends from share capital, rather from their profits, it’s a profit sharing with shareholders. And yes, share price gets adjusted with the dividend amount on the opening price of ex-dividend day.

When someone shares what they have with you, it should get added to what you already have. Here the money is coming from the shares what you hold, so the money is getting transferred from your DMAT to your bank account, not from the profit company has made. OfCourse share price would have accounted for the profit the company has made and the price would have gone up. So one can argue that stock price went up because of profit made, and a portion of it was adjusted for dividend.
That is the exact reason for dividend payout, promoter cant take the profit out from equity to cash like you and I can do by selling a portion of it, so they take the portion of profit out in the name of dividend payout.

For ex, if you had 200 stocks of XYZ company, and today's closing price is 400 Rs. So what you have is 200 *400 = 80,000. Lets say next day stock goes ex-dividend by 10Rs, what happens is your holding value becomes 78000 and 2000 Rs gets transferred to your account. Then stock continues to trade and goes up or down, thats a different story.
So, you have 200 stocks at 390 each now. Now tell me what is the difference between taking 2000 Rs profit out by this route and selling 5 stocks at 400 Rs.? Answer to this question will tell you why dividends are given.

Happy investing.

[SmartCat]

Originally Posted by thirugata

When someone shares what they have with you, it should get added to what you already have.

Company is not a "they" to give you money like salary or handout. You (as a shareholder) already have proportional rights over the company's reserves/profits.

Here the money is coming from the shares what you hold, so the money is getting transferred from your DMAT to your bank account, not from the profit company has made.

There is no "money" in demat. There are only 'shares', and that number stays the same. But whatever you are trying to imply, the same applies to the promoter too (that is, promoter too is getting "money" from his demat, not profit). If everything remains the same for both promoters and minority shareholders, then there is no problem.

That is the exact reason for dividend payout, promoter cant take the profit out from equity to cash like you and I can do by selling a portion of it, so they take the portion of profit out in the name of dividend payout.

Again no difference. Promoters & promoter group regularly buy/sell their own shares like we do, whenever they need cash or have a surplus
https://www.nseindia.com/companies-l...nsider-trading



And if it is not attractive for a promoter to reduce shareholding (because he loses out on a proportion of future returns) even by a tiny amount, the same applies to minority shareholders too. Why should I want to sell 100 or 200 shares? I want to keep all my 10,000 shares, for the possibility of stock price increase over time.

[thirugata]

Originally Posted by SmartCat

Company is not a "they" to give you money like salary or handout. You (as a shareholder) already have proportional rights over the company's reserves/profits.

Attachment 2415319

You seem to be conveniently sidelining the main point I say and nit picking into things.
Anyways, dividend is profit sharing.

With same logic, if you have 10 chocolates in a basket in your hand, if I pick one from your basket and put in your pocket I can claim I shared one chocolate with you.

As everyone invests based on their beliefs I wouldnt want to change one's belief.

Good luck with your investments.

[SmartCat]

Originally Posted by thirugata

As everyone invests based on their beliefs I wouldnt want to change one's belief.

I'd wager that you will try again after a few months, to get everybody to agree with your belief.

With same logic, if you have 10 chocolates in a basket in your hand, if I pick one from your basket and put in your pocket I can claim I shared one chocolate with you.

The basket of chocolates is never in our hand. It is always with the promoter/management.

Meaning (because this chocolate analogy is weird):

We have no control over cash flows/reserves/profits of the company, we only have proportional rights over these. Only the promoter/management has control. He can decide to give the surplus away as dividends or blow it up on $1 billion acquisition (just because his ego gets boost and he gets to be on the cover of FORTUNE or FORBES).

So summarising:

1) Rights is NOT equal to control
2) Selling shares is NOT equivalent to receiving dividends (because as mentioned before, when you sell shares every quarter or year, you will get less and less of future prospects of the company)

[thirugata]

Originally Posted by SmartCat

I'd wager that you will try again after a few months, to get everybody to agree with your belief.

You didn't disappoint me with the answer.
And I am glad you have some strong beliefs.

[warrioraks]

Originally Posted by sunilch

This is a big risk and red flag for the regulator and hence is unlikely to be taken. The promoters or management of the company could take advantage of the same as now they can decide/plan the date and change their holdings.

That is definitely a possibility. But what you are saying is practically insider trading. The regulators have checks and balances already in place to avoid these things. Example: companies need to observe a blackout period where insiders (promoters, board members, etc) cannot trade shares around quarterly and annual financial reporting meetings.

So fixing the ex-dividend date within the blackout period seems to fix this problem.

Originally Posted by thirugata

For ex, if you had 200 stocks of XYZ company, and today's closing price is 400 Rs. So what you have is 200 *400 = 80,000. Lets say next day stock goes ex-dividend by 10Rs, what happens is your holding value becomes 78000 and 2000 Rs gets transferred to your account.

What about the share price increase when dividend was announced? I read through the exchange from last year between you and SmartCat (Rs 100 and 96 conversation) on this thread and what you are saying makes sense only from a trader perspective who bought into the shares between the dividend announcement and ex-dividend date.

For any other investor, the share prices go up after announcement and go back after ex-dividend. Such investors will always net money through dividends.

Secondly in the example above - share price of Rs 400 and dividend of Rs 10. Let's change the numbers slightly. Assume the share is trading at 400 and the company announced a dividend of Rs 350, are we saying the price will go down to Rs 50 ex-dividend?

[SmartCat]

Originally Posted by warrioraks

Assume the share is trading at 400 and the company announced a dividend of Rs 350, are we saying the price will go down to Rs 50 ex-dividend?

If the special dividend is of that magnitude, big crash in stock value is likely to happen. In this example, cash on the books is nearly equal to marketcap. That is, stock market participants are not assigning much value to its business. So if you take out the cash, there is not much value in the stock either.

I cannot recall the names but there are a few examples of companies that sold their major subsidiary and paid out the proceeds as special dividend. After dividend payout, the stock crashed because the ongoing business will now see significantly lower revenues/profit year on year.

So if a dividend payout is one-time occurrence (called 'special dividend') and is of such magnitude that it materially changes either the valuation or future prospects of a company, the stock price will definitely reflect that.

[warrioraks]

Originally Posted by SmartCat

I cannot recall the names but there are a few examples of companies that sold their major subsidiary and paid out the proceeds as special dividend. After dividend payout, the stock crashed because the ongoing business will now see significantly lower revenues/profit year on year.

Yes agreed. But that price crash has less to do with dividend distribution and more to do with future earnings potential. Imagine if the entity being sold is a loss making entity, and the impact is net positive on future profit of the parent company, would the price still crash?

On a flip side - not giving out dividend can lead to stock price going down as well if promoters come across as too greedy.
An example is when Hinduja Global sold their healthcare unit couple of years back. They retained most of the sale proceeds with less than expected dividend to investors. Stock price crashed as the stock holders lost faith on the promoters (temporarily). Effectively the way I see it, there is no perfect co-relation between dividend and price of stock. It is just one of the inputs in overall context.

https://wap.business-standard.com/ar...0800034_1.html