New investors often are seduced by dividends which a company has paid recently to its shareholders. Most often they tend not to look beyond the obvious such as consistency of dividend payments, company fundamentals as well as the future prospect of the business sector. Companies often lure new investors by paying huge one-time dividends. For new and lay investors, who do not have the means or the knowledge to judge market trends often fall the glamour of it.
What they don’t realize is that many a times a company gives huge dividend for a strategic reason of draining their cash reserves. Or in other cases, this is done when the promoter has decided to focus their interest in some other sector. In itself, paying large sum as dividends reflects a sort of limitation on the scope for diversification, growth and expansion of the business. Hence, investors must beware of such demeanors and try to find out whether the promoters are shifting their area of interest and putting the present business interest on auto-pilot.
With aberrations withstanding, there are a good set of companies with a positive track record of paying dividend year after year. Companies such as Bajaj Holdings, Infosys Technologies, Hero Honda, Tata Consultancy services etc. have been known to share their harvest with all the stakeholders. It must not be construed as a lack of idea or new ventures or diversification. It’s pure and simple profit sharing.
A few public undertaking banks have also good record of paying dividends consistently.
Hence, it is advised that during bearish times one must not fall for dividend payment, as the sole criteria for investment, but must look beyond the obvious.
What they don’t realize is that many a times a company gives huge dividend for a strategic reason of draining their cash reserves. Or in other cases, this is done when the promoter has decided to focus their interest in some other sector. In itself, paying large sum as dividends reflects a sort of limitation on the scope for diversification, growth and expansion of the business. Hence, investors must beware of such demeanors and try to find out whether the promoters are shifting their area of interest and putting the present business interest on auto-pilot.
With aberrations withstanding, there are a good set of companies with a positive track record of paying dividend year after year. Companies such as Bajaj Holdings, Infosys Technologies, Hero Honda, Tata Consultancy services etc. have been known to share their harvest with all the stakeholders. It must not be construed as a lack of idea or new ventures or diversification. It’s pure and simple profit sharing.
A few public undertaking banks have also good record of paying dividends consistently.
Hence, it is advised that during bearish times one must not fall for dividend payment, as the sole criteria for investment, but must look beyond the obvious.
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