It's dividend time.
So if you want to buy shares, consider investing in companies that are to declare dividends.
What's that?
Dividend refers to the cash payment a company makes to its shareholders.
These are distributed from the company's profits and are given in proportion to the number of shares you hold. So a 5% dividend means that if the face value of a share is Rs 20, you will get Rs 1. If you own 100 shares, you will get Rs 100 as dividend (Rs 1 per share).
The performance of the Indian companies in general has been very good during the financial year 2004-05. This translates into good profits and higher dividends.
Who gets it?
Most companies will be holding the Annual General Body Meeting of the shareholders latest by end September 2005.
The register of members (the names of the shareholders), will be closed for about a week prior to the holding of the AGM.
Hence, the dividends declared will be paid to those shareholders who are listed as members on the date of closing of the register of members.
Are dividends taxed?
No.
The dividends received are exempt from income tax.
Hence dividends are an excellent tax-free return on your shares.
Make the right picks
The onerous task is to identify the right companies. The ones who will be declaring the dividends or would have already declared the dividends.
You can start by looking at the web sites of some well-known online brokers: Sharekhan, Kotak Securities, ICICI Direct, 5paise and India Bulls.
Over here, you should be able to find out which companies have declared dividends and announced book closures for their AGM.
For example, a quick search on ICICI Direct indicates that Gujarat Ambuja Cements Limited has declared a final dividend of 30% at its Board Meeting held on July 30, 2005 and the register of members will be closed from August 19, 2005 to August 31, 2005 for the purpose of distribution of dividends.
If you invest in such dividend paying companies before the closure of the register of members, you will be eligible for the dividends.
Dividends are normally distributed within 42 days from the date of the AGM. So in the next two to three months, you can look for some tax-free, dividend income.
Nothing is without risk
The only risk is the market risk. And, that is quite a risk.
Despite all the predictions of a phenomenal bull run that shows no sign of abating, there is no saying where the stock market is headed.
When you actually want to sell the shares, it may just slump.
However, if you do hold on to the shares and sell it after a year, the resultant profit is long-term capital gain, which is again exempt from tax.