BOMBAY, 16 July — There are a lot of people who have been wondering where to put their surplus monies. Fixed deposits, mutual funds, bullion, bonds and debentures, most of the options have been covered. But what about the stock market? Given the condition of the markets today, most of the people would rather put their money in a sack and dump in the sea rather than invest in the highly sublime stock markets. “One day up and the next whole week down” that seems to have become the idiom of the stock markets, not just in India but all over the world. Given the vagaries of the market, it seems to have become a dangerous place for the weak hearted ones to venture into.
Yet, despite all the negatives of the stock market, then why is it that most of us are unable to shun the markets or stop putting money there? Simply because the returns, if they come, are better than anywhere else. The lure of making a fast buck is so strongly entrenched in the markets that it is difficult to avoid it.
So what is the best way to invest in the stock markets and still come out making money? There is indeed a smart way in which investors can truly make money on the stocks. This may sound incredulous but it is the truth. But what you got to keep in mind is that we are looking at rate of returns when compared to bank rates or bullion and not how fast the money will double.
Earlier, during the days of our grandparents, investing in stocks meant putting the money in ACC, Telco, Tisco and then just forget all about them. There was nothing like shuffling the portfolio or restructuring it every six months. Investments then were for keeps and were passed on as “inheritances” to the next generations.
And it is precisely this method of finding stability and staying with good stocks which will see you through the rough days, even in today’s times.
The best companies to invest, irrespective of the market conditions are those which have a had a consistent dividend paying track record. In today’s era, dividends might have lost a lot of meaning but to earn a good and consistent profit, dividend is indeed the best method to judge a companies investment worthiness.
It is best to invest in companies which give a high dividend yield. With interest rates having come down drastically, this tax-free dividend seems attractive. Additionally, capital gains can also be earned if the prices go up in line with the markets or good performance of the company. Regularly dividend-paying and profit-making companies are currently trading at prices which give a dividend yield of over 10 percent.
Before deciding on the companies, one has to adhere to the following conditionalities. One should look at only companies which have declared dividend consecutively for the last three years. Please ignore companies which had declared one-time large dividend in the latest year. Avoid loss making companies like plague and also companies which have not been regularly traded during March 2001.
Before picking up companies, first check whether the company has increased or reduced dividend over the last three years and what is its latest performance. Avoid companies which have been reducing rate of dividend over the years and companies whose latest performance is adverse.
Dividend yield is calculated as a percentage of dividend declared per share for the latest year divided by the current price and multiplied by 100.
Take a look at companies like G. G. Dandekar (div. Yield: 107 percent), Prima Plastics (33 percent) and Ahmedabad Steel (31.7 percent). And also companies like Kalyani Forge, Blue Star, IDBI, Ashok Leyland Finance, Siltap Chemicals, TN Petroproducts, Electro Steel Castings, Nilkamal Plastics, Vanavil Dyes, George Williamson, Shasun Chemicals, G. P. Electronics, Wim Plast, Blow Plast, VIP Industries, Nagarjuna Fertilizers, GIC Housing Finance, Can Fin Homes, Excel Industries, Tata Chemicals, Color-Chem, Pentamedia Graphics, Supreme Industries, Banco Products, GNFC, State Bank of Punjab, Tata Finance, Surya Roshini and Paper Products are excellent when it comes to dividend yield.
What is surprising is that pivotal companies like Bajaj Auto, Zee, HFCL, Global Tele and the likes which normally rule the roost on the bourses are not so high when it comes to dividend yields. Companies like Tisco and Telco, ACC, Infosys are also high dividend paying companies but their yields are much lower than those given by the above mentioned companies.
What this proves is that one is once again going back to the days of yore when dividend rates played a very vital role when it came to making investment decisions. And now it is quite apparent that even today, to insulate oneself from the vagaries of the bourses, the see-saw ups and downs of the stock prices, it is best to go for high and consistent dividend paying and profit making companies.
So for those looking for the best returns on the stock markets, the best deal is to look out for consistent dividend yields.
