Fundamental Investor

Master the art of Value Investing in the Indian Stock market. With right perspective, understanding of Stock Market Fundamentals & Basics, we can identify Multibaggers and evolve towards Wealth Creation. Are you ready to Learn and Own Businesses? Welcome aboard !!! Lets learn, serve and grow together - Your own Fundamental Investor

Saturday, 30 June 2018

Magic of Dividends - The Real Return !!!

What are Dividends? Are Dividends Useful? Are Dividends Significant? What Impact do they have? Can they, over a period of time, cover Basic Expenses? Can Dividends Compound? Read on...

Dearest investors & friends,

Hope you are all doing well. It's been months since I wrote my thoughts on your site. I have been pretty active on Twitter - @FI_InvestIndia and very happy to connect to thousands instantly there.

Today, I am going to write about a concept which is very close to my heart. And of course, something I am lucky to experience.

When I put this thought on Twitter, there were many who couldn't relate to it. Yes, it's extremely difficult to relate to this idea, unless we experience it. There were many questions asked. In this article, Ill try to throw light on as many aspects as possible.

Friends, keep a note/pencil ready to take down some important points. Don't hesitate to read this article on desktop/laptop :-)

Let's first understand some basic concepts. 

Dividend - A part of the Profits or Reserves paid regularly (typically Annually/Quarterly) by a company to its Shareholders

Let's assume "Growth_Dividend Limited" is a Company which is trading at 1200 per share. It's Face Value is 2 per share. It's dividend is 40 per share annually.

If you are a newbie, to understand some basic Terminologies, before proceeding, please click here

Some more definitions:

Dividend Percentage - (Dividend/FV) x 100 = (40/2) x 100 = 2000% 
Dividend Yield          - (Dividend/Share Price) x 100 = (40/1200) x 100 = 3.3%

Now, let's move a little further:

Most of you will be wondering about the Naming of this Article. Let me explain. 

We all know that in a Business, Earnings & Cash flow defines its Strength. No matter how good the Product/Service is, unless business grows Earnings over a period of time, we Shareholders do not make any money.

Share price of a Business keeps fluctuating based on Market Conditions, Emotions, Sentiments, News, Analyst Reports, Demand, Supply etc. Hence Returns keep fluctuating. If we observe carefully, at any point of time, our notional Profit or Loss will exist. 

But, if we are invested in a Consistent Dividend paying company, the Quarterly/Annual dividend is Real Money for us. It comes to our Account - Tax Free (below 10 Lakh annually). Over a period of time, it can be used for our Expenses or can be Reinvested.

Many businesses have a Dividend Policy. I am personally invested in a Business where 50% of Earnings Per Share is given back to us shareholders in the form of Dividends. There are many companies where as business grows, Dividend also grows. In this case, what happens is, over a period of time, Share price slowly & steadily moves up. Dividends also slowly inch up.

Now, observe this picture carefully. You can click on the picture to visit the sheet also, as you read further.

Friends - Below is past data. Doesn't mean it is the future :-) Just a disclaimer. Take the essence. Not the company names please...

Let's take the example of Maruti Suzuki in this list. It has been a fantastic business over decades. 

In April 2010, Maruti was trading at 1400 per share. Kiran bought 100 shares of Maruti (1.4 Lakh rupees) in 2010. Dividend was 6 rupees. So, the Dividend Yield in 2010-11 was a mere 0.4% (600/140000).

In 2018, Maruti is trading at 8900 per share. Dividend is 75 rupees (moved up steadily from 6 rupees to 75 rupees). Kiran is still holding her 100 shares. 

Now, let's observe carefully:

In 2018, she got 7500 as dividend. On her invested capital of 1.4 Lakh rupees, dividend is a whopping 5.4% (7500/140000). 
Also, today since Maruti is at 8900 per share, her share value is 8.9 Lakh rupees.

Now, over a period of time, if Maruti continues to gain market share and progressively earns, the dividend also will keep moving up. Let's pause and re-read the above example. Please give some time to digest above thought.

Now, in the above list, I have tried to collate this information for some more businesses. I used to own few of them at some period of time in my investment journey.

Majority of companies owned by legendary Warren Buffet, are dividend paying. The beauty of growing dividends comes into play, as we hold the business for decades.

Consistent and growing dividends also, to a certain extent, give us confidence on the Financials of the Business. There might be exceptions to the rule, but I like investing in businesses which have a good dividend paying policy and adhere to it.

Dividend Compounding:

We have all heard about Compounding in Stock Market. But, have you heard about Dividend Compounding? I get goosebumps even by thinking about it.

Look at the graphic below:

As you can see, the difference in returns is enormous between Dividend Reinvested & Dividend Withdrawn.

If we continue to buy more shares with the dividends which we received, the dividends also will compound along with the business share price (assuming that company continues to grow steadily over decades).

Now, a few pointers while identifying Dividend Paying Companies (In screener etc.)

- Business has to keep growing (earnings has to be steadily progressive). Else, dividends won't grow.
- Check Dividend Payout history. Is it regular? Consistent? Growing? Flat? (You can find it in Corporate Actions page in Exchange website)
- Find out Dividend Paying Policy (in Annual Report) and see if they have adhered to it religiously
- Avoid cyclical companies while looking for consistent dividends (where dividends also will be cyclical)

So ,friends... Never ever underestimate the Power of Dividends. It's so Real. So Amazing. In the Longer Run, it can work magic. Yield might be low today. Might look ridiculous. Laughable. 

But, if business compounds over a long time, yield will be awesome.

Imagine - A day might actually come, when the Annual dividend would be the Initial capital deployed. Imagine a day, after 12- 15 years, when Monthly expenses can be taken care by Dividends alone. 

To Start, we need to Believe. I want everyone to experience, what I experience. It's a Long Long Long Road. But, 100% Worth...

I wish you all the very best my dears.

All my articles are in this link. Click here.

If you happened to like this article and want to continue learning, please subscribe for free email updates by clicking on the box below

Good luck,
Fundamental Investor

Saturday, 18 November 2017

Compounded Annual Growth Rate - CAGR

Ever come Across Following Phrases?
- Our Company has given 33% CAGR Returns in last 30 Years.
- If you had invested in our Mutual Fund Rs One Lakh in 2000, you would have 22 Lakh in 2017 - A Mind Boggling 20% CAGR in last 17 years
- This Company can Grow at 66% CAGR for next 10 years

And they follow this with Disclaimer - Read Offer Document Carefully before investing :-)

What is CAGR Really? Are these Statements Really as Awesome as they Sound? Read on...

Welcome to the Roaring Bull Market Friends.

Dearest investors & friends,

How are you all doing? As I write this Article, The Overall Markets are doing exceptionally well. The Nifty is above 26 times Trailing Earnings. We are at a phase where Most Businesses and Mutual Funds are Boasting about their CAGR Returns :-) 

CAGR is the Most Used, Abused and Misused word in the Market Today.

Today, I am going to deep dive into what CAGR really means. What is Compounded Annual Growth Rate? How does it Work? Whom does it Really Benefit?

When we invest in a Fixed Deposit, we get Fixed Returns every Year. For eg: A Fixed Deposit would give us around 6% Compounded Annual Returns Every Year.

What this means is, if we invest Rs 500 in the year 2000 in the 6% CAGR FD for a period of 17 years, we would have Rs 1346 at the end of the period.

What if we invest in an instrument which gives us 20% returns every year. Fixed Returns. There is no such instrument but, just hypothetically.

Chart would look like this. In 17 years, we would end up with Rs 11093 in year 2017 on a Rs 500 investment in year 2000.

But, friends. In Equity Based Investments, the Returns are NOT FIXED every Year. Chart is not like the above. 

Let's begin by Looking at Price Chart of 3 companies over 17 years (2000 - 2017):

Let's Assume that all 3 Companies have given 20% CAGR over 17 years (Since they began with Rs 500 in year 2000 and ended with Rs 11000 in year 2017)

Company 1 has had a pretty steady graph. So a person who entered in year 2000 would get 20% CAGR over 17 years, provided he/she stayed invested. 

Company 2 has a very interesting Graph. If you notice, the person who invested Rs 500 in year 2000 was at Rs 1200 in year 2002. But until year 2013, the investment remained in the range of Rs 800 to Rs 1200. Yes, 11 years of no movement. But, from year 2013 to 2017, the movement was very very quick. It moved from Rs 1000 to Rs 11000 in a matter of 4 years. So even in this investment, the person who stayed for 17 years enjoyed CAGR of 20% (even though the maximum returns came in the last 4 years). But, if we calculate CAGR from year 2013 to 2017, it is a Mind Boggling 81%. 

Company 3 has a very Cyclical Graph. Investment moved from Rs 500 to Rs 10000 and then back to Rs 1500 to Rs 12000 and then at Rs 11000 in year 2017. Even in this case, the CAGR would be 20% for a Period of 17 years. But, people who invested in between either lost their money or Made Returns. The Time Spent and the Timing of the Investment made the Difference.

I hope you have got a Good Feel of what CAGR really is. So let me summarize this for all readers:

- The Most Important Thing to Note is that Compounded Annual Growth Rate in Equity Market is Not Fixed Yearly Returns.

- If someone claims that Company has Grown at 20% CAGR for last 17 years, this is Applicable only and only for People who stayed invested for 17 years. There might have been multiple Ups and Downs in the 17 years.
- CAGR would change based on when Entry and Exit in Equity Market Investment
- CAGR over a Longer Period of Time is Important for Investors
- An Excellent CAGR over Short Period of Time might lessen as Time Progresses

So, next Time any Mutual fund or Promoter talks about CAGR, you should read between the Lines. Especially in a Roaring Bull Market, Tall CAGR Claims are made. 

When we Invest in the Stock Market, we need to always Remember that in Quality Businesses which are Growing their Revenues & Profits at 20% plus every year, the Stock Price will also Compound Well over a Period of Time.

So, let us Continue to Focus on Businesses which would Compound its Business and if that happens, we can get good CAGR Returns over a Good Number of Years.

Click here to Take a Quick Quiz on CAGR

If you happened to like this article and want to continue learning, please subscribe for free email updates by clicking on the box below

Good luck,
Fundamental Investor

Friday, 13 October 2017

Annual Reports FY 2017 Key Highlights

Dearest investors and friends,

How are you all doing? Hope you are all compounding wealth peacefully and steadily.

Apart from the Google Group & MMB, recently, I have been connecting with Investors in Twitter which is a wonderful platform for quick updates. I hope, through these channels, anyone can connect with me at ease and we can have good discussions.

If you like the collective work below, please take a moment and to Like & Retweet this link so that many more of your followers can also benefit.

Click to Retweet 

#AnnualReport #Notes 2017 for #Investor #Community

Click on the below Box for Annual Reports FY 2017 Key Highlights.

Please share the link to your circles on Emails, Whatsapp Groups, Twitter, FB etc so that more and more investors can read, understand, benefit and maybe help by contributing some more Notes.

As of today, the following companies have been covered:

- Piramal Enterprises Ltd
- Indiabulls Housing Finance Ltd
- Edelweiss Capital Limited
- Ujjivan Financial Services Ltd
- Advanced Enzyme Technologies Ltd
- Cupid Ltd
- Avenue Supermarts Ltd
- LT Foods Ltd
- Alembic Pharmaceuticals Ltd
- Finolex Industries Ltd
- V-Mart Retail Ltd
Granules India
- Avanti Feeds
- Murudeshwar Ceramics
- Manappuram Finance
- Maharashtra Scooters
- Future Enterprises
- Cadila Healthcare
- Omkar Speciality Chemicals
- Future Retail
- Virinchi Ltd
Rain Industries Ltd
- Caplin Point Laboratories Ltd
- Vakrangee Ltd
- Nitin Spinners Limited
- Multibase India Ltd
Maithan Alloys Ltd
- IG Petrochemicals Ltd
- Mold Tek Packaging Ltd
- Siyaram Silk Mills Limited
- BSE Ltd
- APL Apollo Tubes Ltd
- P I Industries Ltd
- Jamna Auto Industries Ltd
- KEI Industries Limited
- Raymond Limited
- Spicejet Limited
- Tata Global Beverages Ltd
- Hikal Limited
- Ambika Cotton Mills Ltd
- Persistent Systems Limited
- Motilal Oswal Financial Services Limited
- Alankit Ltd
- Aurobindo Pharma Ltd
- Navneet Education Ltd
- Byke Hospitality Ltd
- Trigyn Technologies Ltd
- Bharat Bijlee Ltd
- Nesco Ltd
- Pondy Oxides and Chemicals Ltd
- Gujarat Narmada Valley Fertilisers & Chemicals Ltd
- Anjani Portland Cement Ltd
- Majestic Research Services and Solutions Ltd
- Strides Shasun Ltd
- Karnataka Bank Limited
- L&T Finance Holdings
- Dilip Buildcon Ltd
- Century Plyboards India Ltd
- Vikas Ecotech Ltd
- Centrum Capital Ltd
- Oriental Carbon and Chemicals Ltd
- Time Technoplast Limited
- Sanwaria Agro Oils Limited
- Eimco Elecon Ltd
- Sharda Cropchem Ltd
- Fineotex Chemicals Limited
- Accelya Kale Solutions Ltd

Every week, Ill be updating you with more and more companies prepared by Friends and Investors.

Enjoy the Read. Let us know you thoughts.

If you happened to like this work and want to continue learning, please subscribe for free email updates by clicking on the box below

Good luck,
Fundamental Investor

Saturday, 5 August 2017

Retire Early with Financial Independence !!!

Retiring early !!! Financial Freedom by 35. Sounds like a Dream, isn't it? Can this really be achieved? Can we start from Zero and still achieve it? If yes, HOW? Read on...

Saturday, 8 April 2017

One Night Stand in the Stock Market !!!

How many of us have a one night stand with a stock, then move on to date another and then another and never settle down? How many of us even end up blind dating a business due to excitement? How many of us marry an evolving stock and live with it, take its support, use its strengths, remain in downs and ups and value it? In our investing journey, we always have a dating phase. But many of us remain in the dating phase and never move to the next level which actually makes us wealthy. Read on...

Sunday, 19 March 2017

Fundamental vs Technical Stock Picking

Ever wondered what is the difference between Fundamental and Technical approaches to Stock Picking? Is Technical Analysis a form of betting your money? Is only investing with Fundamentals in mind enough? Read on to get more clarity...

Saturday, 21 January 2017

Diversified vs Concentrated Portfolio !!!

Portfolio Structuring is key to Wealth Creation. Which Portfolio works better? Is it Diversified Portfolio or Concentrated Portfolio? What are the advantages and risks associated with either? Read on..

Friday, 14 October 2016

Pledging of Shares and its Impact

In the Shareholding Pattern of Listed Businesses, we see a section called Pledged/Encumbered shares. Ever wondered what it meant? Who pledges shares and to whom? Why does this happen? What's the impact? What should we do? Read on...

Friday, 2 September 2016

Impact of Bonus and Split of Shares - Myth Unraveled

Multiple listed companies go for a Bonus Issue or Split their shares. Do we actually understand what that means? What is the implied impact? What does it really signify? Should we get excited? Has anything really changed? Read on...

About Me

My photo

Our aim should be to learn and share the art of investing in the Indian Stock market. With right perspective, understanding of stock market basics and a sound attitude, we can all identify Multibaggers and evolve towards Wealth Creation. Are you ready to own businesses? Welcome aboard !!! Lets learn, serve and grow together !!! 
- FI