Do you know?
Strong dividend-paying companies are often backed by committed promoters who have a vested interest in the company's success.
Dividend is the primary source of income for good promoters. That's why they panic buy their shares in the bear market. A vicious cycle of more dividends and more promoter buying.
And this vested interest angle applies not only to dividends, but various other types of corporate actions too.
If you are interested in knowing more, then here is a guide to corporate action based investing where in we will explore how to build a portfolio of stocks that can generate a steady stream of income for you.
So let's begin by understanding what corporate actions mean.
Corporate actions are any step taken by the management team which affects the security issued by a public company.
Generally speaking, a publicly traded company, in all fairness, intends to maximize the shareholders value by taking such steps.
Common types of corporate actions which enhance shareholders value include dividend distribution, bonus issues, stock splits, share buybacks, rights issue and corporate restructuring via spin offs, mergers and acquisitions.
See through these corporate actions and there is money on the table for you
If you never thought about it earlier, now you have something rewarding to think about.
The key questions to ponder here are:
1. How keeping a watch on these management actions can enhance your portfolio returns?
2. Do stock prices follows a well defined path post the announcements?
Let's explore some really interesting data points about famous corporate actions and see if we can answer the above question.
And in the answers, lies the opportunity.
To start with, here are some latest corporate actions by different companies. You can sort the table by clicking on the column headers and can also click on rows to get stock wise details of all the corporate actions. You can also use the search box to search the table data. Idea is to familiarize yourself with different types of corporate actions.
Next, let's have a look at some summary statistics. Here is the approximate count of different types of corporate action by BSE companies since 2008. You can clearly see, the most famous corporate action is Dividends.
This is the way promoters and influential shareholders get paid in cash for their conviction in the company and the management team. It's their bread and butter.
Only two categories of investors appreciate the power of dividends.
1. A very long term investor
2. An investor with appreciable share holding.
Please allow me to elaborate on the real motivation behind dividend investing.
For long term investors, dividend yielding stocks act as safe haven. They provide good returns with high degree of safety. Even in volatile market conditions, perpetual dividends ensure a decent return on investment. On top of that, it's liberating in terms of how little time and effort you spend on research.
But why haven't I been thoughtful about dividends?
Most probably your ownership percentage is too small for dividends to have any meaningful impact on your cash flow ;-).
So increase your ownership to experience the magic.
You will thank me later for this. As they say, you can't cover a book in an article :-).
So pick the strategies from the book and use the data on this page to pick the right stocks. A killer combo.
Anyways, lets move ahead.
Math behind dividend investing
Generally speaking, the dividend yield of your portfolio is around 1 to 1.5%.
Which simply means, if you have a portfolio of 1 Crore, your annual dividend receivable will be around 1 to 1.5 Lacks.
And what do you do to earn that - literally just sit and relax.
And this is not the end of the story.
Hopefully, you will be making much more in terms of price appreciation of your holding as you have a very long term time horizon. Furthermore, you most probably will be benefited through other corporate actions like bonus and splits too.
Ya little bit with respect to dividends, but tell me more.
Ok, let's break above data further and get a bit more stock specific. Here is an interactive table listing the count of different types of corporate actions for different companies since 2008. You can sort the table by clicking on the column headers and can also click on rows to get date wise details of all the corporate actions. You can also use the search box to search the table data.
Looks interesting. But what to do with this data as it has almost all the names listed on the exchanges?
If this is what you are thinking, then let me explain what exactly to look for.
The table above lists the corporate action history of companies since 2008 (you can click on each row to check the year). Needless to say that it's mostly about dividends as that's the most famous and rewarding corporate action.
Now hear this. Any company with long and continuous upward dividend history is inherently a quality company.
Because dividends are paid from profit. Unless the company has been earning profit and doing it for a long time, it cannot have an upward trending dividend history. Pure common sense.
Homework to do:
Do a quick analysis to ascertain if the highest dividend paying companies (by number and amount) have interesting price up trend over a longer time frame. If you find names where price is up trending then congratulations, you have got some worthy candidates for your watch list.
Sounds like an interesting exercise. Why don't you give me some names to start with from your side?
Ok, as you wish. Please find below the list of stocks with increasing dividend since last 5, 6 years. You can sort the table by clicking on the column headers. Click on the individual rows to get the historical dividend trend:
Hey, but absolute dividend amount is not of much help in identifying best among equals.
Allow me to bring in dividend yield into the picture to address this perfectly valid concern of yours.
Dividend yield - separating the wheat from the chaff
Dividend yield basically tell you how much you earn from stock dividends compared to the price you have paid for the stock. If you don't know how dividend yield is calculated, here is the formulae:
Dividend Yield = Annual Dividend per share / Latest share price
It's a ratio so facilitates relative comparison of similar metric.
Put simplistically, all else equal, you should prefer a high dividend yield stock over low dividend yield stock.
So here is a table that lists the latest dividend paid, latest price of stock and latest dividend yield of all the companies who have paid dividends in current or last year. You can sort the table by clicking on the column headers and can also click on rows to get date wise details of all the corporate actions. You can also use the search box to search the table data.
Oooo..this is nice. We have some really interesting names here at the top.
Feel free to play around with the data. I am damn sure you will find some names missing from your long term portfolio. To reiterate, you have to look for companies with moderate to high dividend yield with up trending earning and prices in a longer time frame.
Two-fold benefits - Dividend भी और Capital Appreciation भी
If you are curious about the industries which have been giving dividends for long and in large numbers while simultaneously comparing which are top performers within the sector, then you surely have traits of a good researcher.
So here is a table that shows industry wise corporate action history. It lists top industries who have been giving dividends consistently along with total number of companies that have been giving dividends, total count of dividend, total dividend amount and total count of other corporate actions. Again the table is fully interactive and you can do your own things by clicking on the column headers and rows.
Insights to draw from above table
- Is dividend distribution a characteristic of progressive industry?
- How does the cyclical and defensive sector behave with respect to corporate actions?
- Which are the leading companies within the industry with up trending dividend and price history?
Try to answer the questions in order and you will surely unearth some gems worth inclusion in your long term portfolio.
Enough on dividends...
Let's add other types of corporate action like bonus, stock split and buy backs into our analysis.
The table below lists companies having all types of corporate actions - idea is to check how the companies with maximum type of corporate action have performed historically.
If you are interested in exploring companies who have declared dividend and bonus for sure then you can do the same below.
Just in case you want to explore more about various types of corporate actions, what they mean and their effect on share prices, you can continue reading.
Corporate actions and stock price movement
Through Dividend declaration company management distributes a part of company earnings to the shareholders.
How to benefit from this news – Let’s say the stock price for company A is Rs 100 today. There is a dividend declaration of Rs 2/share. That means each stockholder will get Rs 2/share as cash if he holds stocks of company A on or before Ex-dividend date. As markets react to every good news, the stock price of company A may reach Rs 102 or even higher before Ex-dividend date.
As dividend declaration normally results in stock price appreciation, make a list of good dividend declaring companies and figure out in which quarter and round what date they declare dividends. Invest in them before the dividend declaration date and benefit from price appreciation.
There are four important dates related to dividend declaration and payment which investor should take into consideration
- Dividend Declaration Date – Dividend is announced by the company board on this date.
- Ex-dividend date - On and after this date the stock trades without dividend. For claiming the dividend investor has to buy the stock one day before the ex-dividend date. If the stock is bought on or after the ex-dividend date, investors will not get the dividend.
- Record date - This is the date on which the company checks its records to find out the shareholders of the company. An investor must be listed as a shareholder to claim dividend payout.
- Dividend payable date - This is the date on which the company sends the cheques for the dividend payout due to the shareholders.
Share Buy Back
Share Buyback is basically re-acquisition of companies own shares. Bought back shares are not available for trading. Buy back’s reduces the number of shares and hence increases earnings per share.
Playing buyback is slightly tricky and you need to understand the company’s fundamentals before making a decision. If based on your fundamental research you find out that a company is undervalued and at the same time company management announced a buyback offer it's wise to invest in that stock. When the market condition improves you will reap a handsome benefit out of this investment.
Stock Split/Reverse Stock Split
This is a step to improve the liquidity of stock. If for some reason the stock price of a company is too high or too low and hence trades with low liquidity, companies announce stock splits/reverse stock splits to increase the liquidity of stocks. This basically increases or decreases the number of stocks without changing the market cap of the company.
Stock splits/Reverse splits normally increase the liquidity of stocks and now there are more buyers and sellers for the same stock. Normally companies announce splits if they are quite confident about the future growth prospects. One can invest and benefit from this news if the company is a quality company.
This corporate action gives privilege to existing shareholders by offering them to buy additional shares of the company before going to the open market.
Normally a company offers rights issue if it requires additional capital. Investors should study the need for this capital requirement and if he feels the capital invested by the company will be profitable, he should apply for the rights issue if it’s offered at a price which is considerably less than current market price of the stock.
Mergers and Acquisitions
Merger happens when two companies decide to merge and one of them surrenders its stock to the other one. Acquisition happens when one company buys a majority stake in Target Company. There is no surrender of stocks involved here.
Normally whenever a Target Company is acquired the acquiring company has to pay a premium for this purchase which in turn results in increase in stock price of the target company in the short term. As the acquiring company has to pay the premium its stock price decreases in the short term. An investor can use acquisition news to buy into Target Company and sell the parent company in order to gain in the short term.
Note* - The data on this page comes from what we have in our database and is not complete plus there might be inaccuracy in the numbers shown in the tables and charts above. So use this data for analysis purpose only and do not treat it as any recommendation to trade or invest. Also do a second level check for data accuracy from direct sources like NSE and BSE websites.