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How to make 1L in dividends? - YouTube
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hi everyone welcome to today's video so
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many a times when we enter the stock
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market we enter with the expectation
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that i want to make regular income from
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the stock market
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to execute this plan we end up
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purchasing high dividend paying stocks
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so on this video we are going to
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understand whether it makes sense to
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purchase high dividend paying stocks
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number two we are going to see what type
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of high dividend paying stocks you
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should purchase and third and finally i
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am going to do a fun exercise where i
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will tell you how much money total you
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need to invest in order to make one lakh
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rupee dividend income from sensible
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dividend paying stocks so that is the
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complete analysis i will make it brief
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to the point and this is a very
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important video so please watch it till
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the very end also a very quick shout out
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to our sponsors which is taxbuddy.com
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they have come out with a tax planner
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tool by which if you input your data you
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will get an assessment on how
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specifically you can save taxes so check
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the links in the description box i have
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personally used the product and have
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liked the product very much so let us
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start the video and first and foremost
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let us understand some of the quick
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points and very important points
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regarding dividends so essentially what
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happens is that if you are purchasing
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let's say itc
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and you have purchased this stock then
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how are you going to make money from
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this stock so essentially there are two
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ways
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one is that the stock price so this is
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the stock price at which you might have
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purchased itc today in case you would
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have purchased it and if this stock
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price appreciates for example if it goes
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from 234 to 250 rupees then there is an
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appreciation of 16 rupees per stock then
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this is the money that you are making
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through stock appreciation the second
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way in which you can make money is
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through dividend so dividend is the
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amount of money that you are paid by
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holding the stock so if you are holding
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itc for let's say one year and itc
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declares a dividend only once
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hypothetically speaking and the dividend
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yield is 4.59
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4.59 percent of what of the price so for
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example if itc decides to declare a
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dividend tomorrow which is fifth of
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february and if the stock price is
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trading at 234 rupees then as a
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stockholder you will make some money
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holding that stock how much money which
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might be four point five nine percent
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off to thirty four rupees if that is the
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stock trading price for that day and
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this will directly hit your bank account
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and that is how you will make money from
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this stock now comes a very important
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second concept around dividend as to why
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the dividends are declared because this
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is something that you must understand as
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a stockholder so in very easy to
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understand language this is what happens
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so for example itc is doing what itc is
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running a business
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now through running that business itc
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will be making some money for example if
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it goes and sells some packets of chips
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it might be getting some money in hand
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as profits now let's assume that itc
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made hundred rupees selling these
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packets of chips
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so it has two options now one is that it
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can decide to invest this hundred rupee
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into its own business so this is called
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as reinvesting the profits it can pick
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this hundred rupee and it can decide to
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invest in a factory or hire new
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employees bunch of different different
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things so that is called as reinvesting
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in the business itself but here if the
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firm does not have better investment
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opportunities for example if itc feels
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that you know what we have already
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created too many factories we have
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already hired too many workers there is
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just no use for us for this money right
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now it's just sitting into our bank
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account is 100 rupees so what do we do
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with it so they decide to execute option
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number two which is pay it out as
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dividends so as shareholder you end up
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receiving some portion of this 100 rupee
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so this is a simplified example but very
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important concept for you to understand
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as to why dividends are declared and
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what is the concept behind declaring
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dividends
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this also means that it is not as if
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that if a company is declaring dividend
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that it's a good company if the company
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is not declaring dividend it's a bad
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company so please don't believe in all
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this please go back to this simple logic
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that i have explained that if the
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company has good use of the money then
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they might not declare dividend they
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will reinvest that money but on the flip
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side if the company does not have any
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better use of the money then they might
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give off the money in the form of
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dividends now here is a very quick
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snapshot of this summary so this concept
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consolidates and there is one very
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important point that i would like to
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highlight so i will read that with you
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it is very important for investors to
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keep in mind that high dividend yields
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high dividend yield i explained you the
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concept of dividend yields do not always
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indicate attractive investment
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opportunities so in simple terms what
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are they trying to say they are simply
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trying to say that if you see any stock
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declaring eight percent nine percent
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twenty percent forty percent dividend it
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does not make it an attractive
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investment opportunity so to explain
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that point let me now show you some
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highest dividend paying stocks in india
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and let me do a quick analysis there so
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there is a tool on screener that you can
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use to come up with this list of high
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dividend yield stocks so i am putting
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this list in front of you and let me
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take you point by point so these are
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highest dividend yield shares in india
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and these stocks have been consistently
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paying out dividends sorted on high
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yields so this is the list of companies
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that generally pay high dividends now
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please don't comment that you know what
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okay this company paid higher dividend
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than this all that stuff that might be
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happening but the list of companies that
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i'm showing you in front of you right
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now those companies have been
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consistently paying high dividends so
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let us do a very quick analysis whether
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it makes sense to buy companies like
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coal india iocl rec because here you
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will get super impressed if you go on
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this column and you will see that okay
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i'm getting nine point eight eight
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percent nine point six seven percent
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dividends in an fd i will only be
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getting like five percent six percent
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but here i'm getting ten percent so
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should i not be investing all my money
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in these high dividend paying stocks the
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answer is no and i will explain you the
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math behind that also so let us pick one
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example of coal india and let me show
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you the history around it now take a
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very quick look at coal india's price
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levels the stock price levels and what
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would you notice so if you would have
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purchased this stock
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two years back roughly so the price of
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the stock was roughly 205 rupees
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right now the stock is trading at 161
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rupees so there has been a 20 drop in
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the stock price already now along the
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way from this level to this entire
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journey the stock has gone up and now
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now if you would have made a very
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simplistic decision that okay dividend
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yield of coal india is roughly 10 so i
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will just go and buy it so you might
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have purchased this stock here roughly
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at 200 rupees and you would have
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received roughly how much money right so
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10 of 200 is 20 rupees this is the money
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that you would have made but the stock
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price might have fallen to 160 rupees so
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net net you might have been making a
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loss on this entire deal so this is a
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simple point that a lot of new investors
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miss they just simply go after a high
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dividend paying stock and they simply
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miss out the point around the stock
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price and this is the key takeaway for
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you that the stock price stock price is
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much more important than the dividend if
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the stock price itself is going up the
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dividend yield even if it is low it is
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fine because how are you making money on
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any stock you are making it through
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stock price appreciation and dividend
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both so don't just simply go after
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dividends that's a central message so
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back to our list of highest dividend
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paying stocks if you go through this
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entire list right i will splash this in
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front of you you will see majority of
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the stocks here have undergone a
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suppression in their stock prices and
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that is not a good sign so which brings
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us to the third section that in case you
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are trying to buy dividend-paying stocks
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and you are trying to create a regular
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income for you from the stock market
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then what type of dividend paying stocks
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you should be purchasing so now let me
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help you create a screen and a filtering
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system for you to identify this stock
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list now this is not a complete stock
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list of course you can add subtract
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stocks out of this but this becomes like
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a very good preliminary first list where
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good dividends are being paid out by
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good companies so there are two specific
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criterias that i will ask you to input
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so one is that the dividend yield should
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be greater than three percent this does
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not look very high i'll come to that in
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a minute and second important criteria
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is that the roc return on capital
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employed should be greater than 15
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so just run this query and you will get
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a list of 43 companies now take a look
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at all these different companies for
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example britannia is a good company
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oracle is a good company bajaj consumer
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nmdc
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finance itc polyplex hindustan zinc all
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these different different companies you
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will find a lot of good good names on
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this list now if you have more criterias
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filter it out not a problem but i'm
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telling you absolute beginner level
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stuff in terms of filtering good stocks
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for dividends now why have i picked
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these two criterias number one you
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yourself told me that okay i want high
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dividend paying stocks so if a company
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is paying more than three percent
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dividends that's not bad dividend to
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begin with that's point one and roc
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criteria i have taken because if a
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company is able to generate 15 or more
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roc it is generally considered to be a
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good company in case there is enough
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interest i'll make a separate video on
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roc it's one of the most important
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ratios in terms of assessing stocks but
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to cut the long story short if the
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company's roc is more than 15 percent it
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is generally considered to be a good
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company because that company is making
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money from its operations reinvesting it
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and generating good returns on the
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capital that it is deploying so it's a
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very good criteria from that particular
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perspective so just to quickly wrap up
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this section you can run different
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filters the absolute basic filter that
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you should run is that the dividend
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yield should be more than three percent
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and roc should be greater than 15 so if
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these two criterias are getting met at
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least you have created a basic list of
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companies that you could consider buying
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from a dividend paying point of view
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this is not an investment advice further
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research needs to get done but at least
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this way you will not be buying bad
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companies of course the concept can get
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much more complicated in terms of buying
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dividend paying stocks but there are
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three specific points that i would ask
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you to consider so one is that create a
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list i help you create a list number two
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refine that list and end up purchasing a
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very good asset where the price of the
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stock itself appreciates that is the
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primary goal not the dividend third and
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finally you must remember that whatever
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stocks you are purchasing even from a
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dividend point of view it must fit with
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your portfolio it should not happen that
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you are purchasing all fmcg stocks only
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all banking stocks only all i.t stocks
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only all small cap companies only so it
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should fit with your portfolio so please
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remember these three points and further
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build on this understanding okay so now
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let us talk about the fourth and final
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fun section which is if you want to make
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one lakh rupees from dividend income
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then how much money should you be
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investing in the stock market
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the understanding there is fairly simple
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but there is a very important message so
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i would want you to watch this section
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very very carefully so number one let me
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just quickly divert your attention
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towards this column called as dividend
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yield so if you just quickly scram
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through it you will see that some stocks
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for example ksc has 4.54 as dividend
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yield balmer has 9.8 then there are a
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bunch of different companies 3.47 5.85
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so on and so forth so if you scroll
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through this list you will see numbers
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ranging from three percent to roughly
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seven seven and a half percent so that
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is the usual range that you will see so
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we can easily assume and i'm doing muta
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motor math here just to help you
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understand the rationale don't become
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super analytical here but roughly if you
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are buying a stock for dividend then
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roughly you must expect four percent
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dividend on it so if we have to make one
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lakh rupee at dividend income and
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roughly every stock that we are buying
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from a dividend making point of view is
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giving us four percent dividend yield
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then how much money should you be
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investing in the stock market to make
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this dividend income of 1 lakh then it
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should be 25 times so roughly you need
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an investment of 25 lakhs in dividend
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type of paying stocks to make this one
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lakh rupee as income so that hopefully
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answers your question but a few key
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points that you must remember number one
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the taxation on dividend is highly
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complicated and it's expensive so do
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check out tax buddy to get more
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understanding about how dividend income
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and dividend taxation works that's point
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one point number two you must be aware
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of the fact that this is your principal
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amount so to say you have invested 25
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lakhs and different stocks this is your
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principal amount if this falls by 10
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then you are incurring a lot of loss so
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you must be more worried about the stock
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price rather than the dividend income
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that you are going to make because if
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you are just making four percent
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dividend income on an average but here
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the stock price itself is going down by
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10 then you are incurring a lot of loss
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in the stock market so what is the
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essence of this entire discussion it is
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this that please invest in good
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companies where the stock price
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appreciation is much higher please do
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not worry too much about dividend income
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yes in case you are someone who is
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dependent on the stock market for
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regular income it is okay to define your
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list and start investing in sensible
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companies that are giving decent
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dividends but under no circumstances you
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must purchase stocks because they are
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high dividend paying stocks that is just
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a very bad way of making investments so
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i hope you enjoyed this simplified video
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please give it a thumbs up and i will
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see you tomorrow
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you
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