Dividend Payout Could Be Your Long-term Cash Machine
Life is about balance and investing can't be an exception to this rule.
As any savvy equity investor would know, the stock prices of a company may rise or fall irrespective of its performances or finances.
Given this, its not advisable for retail investors like you to take an aggressive stance and try to ride the market trend for maximizing your capital return.
Even if you are succeed in riding market trend at the right time, you may lose your entire gains in a matter of a few trading sessions if market sentiment changes all of a sudden.
But if a prudent investor picks out a fundamentally good stock, it can give you a handsome return on your capital in short-to-medium term and that's given as reward with cash equivalent from the company management for the risks you have taken at the end of each financial year.
You don't have to worry whether the stock price falls or doesn't rises as speculated.
You are remain in peace of mind of receiving some extra cash, called it Dividend at the end of the year.
What's more, dividend income is fully tax-free in some countries.
Wait, that's not all.
The dividend payout by all good companies grows in proportionate to the growth in net profit.
It means that if you stay invested, your equity dividend income will keep growing year after year in a compounded fashion.
If you think that the return on your capital is tiny compared to your investment, just be patient and watch out for a few years.
Let's say your choosy company's dividend payout grows 20% year-on-year, in 10 years your dividend income will jump by more than 6 times and in 20 years it will go up by nearly 40 times.
And if you consider the occasional windfall such as bonus or right issue, your dividend income goes up in a geometric fashion over a longer period.
For example, if you invest $10,000 in a stock with a dividend yield say 2%, your dividend income will be $200 in the first year.
A low bet, right?But if you are patient enough, and your company's dividend payout grows at 20%, in 20 years your annual dividend income will be $8000 every year.
On top of it, your capital will keep appreciating year after year.
So, your company's dividend payout could be your long-term cash machine.
To qualify a company to be a good dividend-paying one,its five year average return on capital employed(RoCE) need to be at least 15%, five-year average debt-to-equity ratio should not be greater than 1.
5, the ratio of cash flow from operations to cash profit in the past five year should not be less than 60% and the company's net sales, operating profit and dividend payout must have a CAGR of 15% in the past five years.
As any savvy equity investor would know, the stock prices of a company may rise or fall irrespective of its performances or finances.
Given this, its not advisable for retail investors like you to take an aggressive stance and try to ride the market trend for maximizing your capital return.
Even if you are succeed in riding market trend at the right time, you may lose your entire gains in a matter of a few trading sessions if market sentiment changes all of a sudden.
But if a prudent investor picks out a fundamentally good stock, it can give you a handsome return on your capital in short-to-medium term and that's given as reward with cash equivalent from the company management for the risks you have taken at the end of each financial year.
You don't have to worry whether the stock price falls or doesn't rises as speculated.
You are remain in peace of mind of receiving some extra cash, called it Dividend at the end of the year.
What's more, dividend income is fully tax-free in some countries.
Wait, that's not all.
The dividend payout by all good companies grows in proportionate to the growth in net profit.
It means that if you stay invested, your equity dividend income will keep growing year after year in a compounded fashion.
If you think that the return on your capital is tiny compared to your investment, just be patient and watch out for a few years.
Let's say your choosy company's dividend payout grows 20% year-on-year, in 10 years your dividend income will jump by more than 6 times and in 20 years it will go up by nearly 40 times.
And if you consider the occasional windfall such as bonus or right issue, your dividend income goes up in a geometric fashion over a longer period.
For example, if you invest $10,000 in a stock with a dividend yield say 2%, your dividend income will be $200 in the first year.
A low bet, right?But if you are patient enough, and your company's dividend payout grows at 20%, in 20 years your annual dividend income will be $8000 every year.
On top of it, your capital will keep appreciating year after year.
So, your company's dividend payout could be your long-term cash machine.
To qualify a company to be a good dividend-paying one,its five year average return on capital employed(RoCE) need to be at least 15%, five-year average debt-to-equity ratio should not be greater than 1.
5, the ratio of cash flow from operations to cash profit in the past five year should not be less than 60% and the company's net sales, operating profit and dividend payout must have a CAGR of 15% in the past five years.
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