If you have invested in the stocks of a company, which has a record of accomplishment over the years, then it is evident that the company is earning profits. As an investor in that company, you receive a slice of this profit in the form of dividends. Trading in the online share market in India means you have to trade through the market volatility. In such cases, investors usually look at high dividend yield stocks.
Before you decide to invest in high dividend yield stocks, here are a few things, which you need to keep in mind.
What are high dividend yield stocks?
High dividend stocks are those which pay a higher dividend as they earn regular profits. The dividend yield is the payment which a company makes to its shareholders. Most of the companies set aside a portion of their profits for distribution as divided. They retain the rest as re-investments.
Core Working Principle
A dividend yield gives you a measure of how much an investor earns per share from the investment in the form of total dividends. The dividend yield is calculated by dividing the dividend announced by the share price. It is then multiplied by 100.
There is one misconception attached to High dividend yield stocks. There is a perception that only highly profitable companies have a high dividend yield stock. This is no the case. There are many profitable companies whose dividend yield is lower even after having huge cash reserves. Such companies do no part with their reserves as they invest in new businesses and create a long term appreciation for its shareholders.
1. Steady Source of Income
Most companies pay the dividend on a quarterly basis. This becomes a steady source of income. Investors can use this income for various other purposes or can re-invest it. The common practice followed in online equity trading is to reinvest. If you are an investor who is nearing the age of retirement or is already retired then you can choose to invest in a high dividend yield stock as a source of income.
Investors profit through dividends in two ways in the Indian stock market. The first way is through the appreciation in the price of the stocks of the company. The second way is through the distributions made by the company. Some companies also have the dividend reinvestment plan, which allows an investor to reinvest dividends and buy more shares of the company. This can help investors build a larger position in the company in the future. It also makes sure that the company has a long-term investor.
2. Companies with A Good Performance
Many companies, which pay high yield dividend, are strong performers while some are not. These strong performers are able to make huge distributions since the amount of cash is high. You can consider including such stocks in your portfolio. These companies generally perform better in equity trading in the long run. But you need to choose carefully.
When you are thinking to invest in a high dividend yield stock, you should not solely focus on the dividend. In fact, if you want to judge the returns of stock then you can add the dividend yield to the stock performance. Your sole objective should be to no incur losses and lose money in the stock market. As there are many indian share market apps available online, you can start equity trading on any of those. However, make sure you do no directly jump for high yield stocks. Research and tread accordingly.