Well, you all know that passive income is the income for which we do not have to work. But can passive income come from the share market that we do nothing and still get money? Well, today I will tell you that yes, it happens. It can happen with you.
In fact, the amount of investment you are going to do, if you take your investment of 100000, then more than 100000 you can get from the share market every year. How? We will be understanding this blog.
Well, it is understood that passive income means that you are going to earn money without working, but you must have heard that we will earn money by trading ore will invest. If the share price increases, there will be profit. So how will this passive income come? It will come from dividends.
Now when we talk about dividends, many people do not know about dividends. What does this dividend mean? What is a dividend? Well, if you say dividend in Hindi, then in Hindi we say it is a profit. What does profit mean? It is a part of a profit. So if I say dividend that the company is sharing a profit with you, then it will be absolutely right.
Now many people hear about dividends, get excited and start investing in dividend-paying companies, which is not the right way. If you want to invest at any time, then don’t do it by looking at the dividend. I don’t do it by looking at the dividend.
I look at the dividend and how much the company is giving, even if itis giving a very good dividend, but I want to see if there is growth in this company because my main focus is to invest that the company’s share price increases, the company’s intrinsic value increases, the company grows. So let’s assume that if the share price is increasing, then if the company grows here, it can be of 500and it can be of 5000.
So ultimately my focus is that the company grows, but now my investments are a little diversified, so I get dividends from many companies.
Now the monthly dividend income of lakhs of rupees comes because the portfolio is of a decent size, so a good income comes, but I will try to tell you that this thing is not in my mind, but my investment, I feel that in the coming years, a very significant portion of it will be coming as a dividend and I am going to prove it to you.
So now we will understand two things. First thing is why dividends are good for you and how will you get passive income from it. The second thing we will understands that this dividend can also be a trap for you. Trap in the sense that you can be trapped in the trap by showing dividends. So this blog is very valuable.
You stay tuned, you will learn a lot. So first of all, when we are understanding dividends, then we will understand it in this way. If there is a company owner, then the owner can also be the promoter of the company. If I talk about the promoter, then the promoter of the company can get money from the company in two ways.
One way is that he will get a salary from the company. Now salary means that whoever wants can take it from the company. You must have heard a lot of people who say that we do not take salary or there are many such CEOs, founders who’s that we take a salary of one rupee or a salary of one dollar. So now the point is that if they do not take salary, then how will they earn?
The second way is that they can earn from dividends. Now what is the meaning of dividends? Ultimately, you people think that the owner of the company is either the promoter or the director of the company. But the actual owners are shareholders. The director is a servant. The one who has the most shares is the owner.
If you have such a misunderstanding that the company that started it is the owner, then I would like to give you an example. Apple company, which Steve Jobs started, was thrown out of the Apple company. Now think about who has the power. Power is not in the hands of the founder of the company, not in the hands of the director.
Power is in the hands of the shareholder, who has the most shares. Decision making is with him. In fact, if you are a shareholder in any company, then you must be getting emails of e-voting that you can participate in decision making in the company because you are the owner of the company.
If you have a share of a company, then the meaning of share is that you have a share of the company. If you have a lot of shareholding, then ultimately that company becomes yours. Now here the second way is dividends. How does it act? Example, a company has earned 100 crores. Now after 100 crores, it will pay tax.
Now the corporate tax on the company is 25%. Plus, there is surcharge, so the company has paid it. After this, what will be left, now let’s assume that 75 crores are left. Now if the company wants 75 crores, then from this profit, this is a profit, from this profit, it can declare. Now let’s assume that the company’s share is also 100rupees, then it can declare that I will give a dividend of 5 rupees per share.
If it says that I will give a dividend of 5 rupees per share, then how many times a company can give dividend in a year, then many people have this question that how many times a company gives a dividend in year. It depends on the company. It depends on the directors of the company that how many times they want to give a dividend.
I will show you some such companies that give dividends3 times, 4 times, 5 times a year. I am going to show you too. So here if a company has a share price of 100 rupees, 5 rupees’ dividend is given. Nowhere we are seeing that the company is giving a dividend of 5% in a way, but if you listening this way, you will be told on the news channel that the company is giving a dividend of 100%, 200% dividend is giving.
In the starting, many people become fools here by listening to such news that the company is giving a dividend of 200%. What does it mean? If the company’s shares of 100 rupees, then people will think that 200% means the company is giving a dividend of 200 rupees.
If the company is giving a dividend of 100%, then it is giving a dividend of 100 rupees, then I will buy it. But why do people become fools? I will explain to you. The dividend of the company, when we say 100% dividend, it is not on the share price. It is on the face value. Now what is the face value? I will explain to you.
Whence do the formation of a company, then we have to keep the face value of a share. Now let’s assume that the face value of the share is 5 rupees. So if the price of the share has become 100 rupees, but its face value is 5 rupees, then you can say that you are giving a dividend of 100%. But this is wrong to say legally, but it is wrong to understanding this way.
What should you understand is how much is the dividend yield of the company. Now what is this yield? That the annual company is the correct way of its share price. Thesis the correct way. This is the wrong way to see how much percent dividend you got. The correct way is that you see the dividend yield. If you see the price of any share, let’s say it is 100 rupees and you see its dividend yield is10%.
So how is this calculated? How much dividend did the company give according to its share price last year? If the share price is 100 rupees or last year it was 100 rupees and according to that, the company has given a dividend of 10%, then it is clear that the company has paid a dividend of 10%.
If you invest in such a company, keeping this mindset that the dividend yield is 10% or more than that, then in 10 years my share will be free.
Well, it is not wrong to understand this. This can happen. Why can it happen? You invested in a company, the share price is 100 rupees, you are getting a dividend yield of 10%, that means every year you will get 10 rupees. After this, you will get 10 rupees every year. So in 10 years, the amount of investment you have made, it is free.
What is the second thing you see? In 10 years, the share price will be 200-300 rupees. So if it is 300, you have invested 100,000 rupees in it. 100,000 rupees of 100,000 rupees came back to you in 10years and it has become300,000 rupees from the 10th year and if you do not sell it, then what will happen?
That you have 300,000 rupees, the company will continue to give some dividend on it. You will continue to get dividends, so after this, your passive income will be permanent. But is this the right way that the company is giving more than10% or 10% dividend, just by seeing that we invest.
Now I want to show you something. Your eyes will open little from here. So for example, we will go to ticker tape. I use ticker tape for stock analysis,
. So we have come to ticker tape. Look here, for example, I have done analysis of Indian Oil Corporation. Here you can see the share price 71.15. No way you go to the overview, here you can see the dividend yield17.37%. As I was giving the example that how much dividend is the company giving, how will you see 17%?
You simply click on the events here. Alright, now you see here, you will see two things. One is the information of the upcoming dividends; you will get here that when the company is going to give dividends next. Here one date is very important, which we call X-Date-Dividend Date. I am going to explain this concept to you.
Before that, I will tell you about the X-Dividend Date. You can see the past dates of the company. If I talk about the past, then here the company has given 1,2,3,4, 4 dividends.it was announced in February, after that 3 per share, then 1.5, 5, if you calculate it, then it is 10.5,₹ 11, 12, and 12 and 5, 17, so the dividend company has given 17 per share in a year, so its dividend yield is very good, but it can dividend in a year.
If you see here, 7.5 per share dividend, be a trap for you. Before that, I will tell you about the date of the X dividend. What does this X date mean? The upcoming dividend that the company has announced, that it will get a dividend of₹ 2.40 per share. If you have 100 shares of the company, then100 x 2.40 means 240you are going to get.
Now how will you get it here? If you buy share before the Date, then the record date is just after one day of the X date, and if you have bought share before the X date, then your name goes to the company that you are a shareholder of the company and you will get a dividend.
Now many people say that how will we get dividend, now you know that if you buy shares before the X date, then you get a dividend.
This is one thing. Now why did I say that it can be a trap somewhere, why can it bear trap? You go to the overview here. Now the company’s dividend deal is very good, the company is giving a very good dividend, but if I see the company’s performance for 5 years, then the company’s returns are minus 43.29%,
that means the company’s share price is not increasing, it has been falling for the past 5 years. Now itis not right to buy this share here. Look here, you can buy it for the sake of dividend, but here you have to see two or three more things. The company’s market cap is about 99,907crores, that is, youkan assumes 1 lakh crore rupees and the company has a loan of1,16,000 crores.
Now if I do calculation, the interest of 1,16,000 crores will be more than5000 crores and the company is giving a dividend of 17% here. The company is giving a dividend of thousands of crores, but it is not reducing its loans, which is not good and in the same way you have n number of examples.
I will take one more example. Let’s assume you take the example of Coal India Ltd. Now you see here we are talking about Coal India Ltd. Now your eyes will go straight here, what I just told you, the dividend yield is 8.85%, which is considered a decent dividend yield.
After this, you will say that the market capes 1,18,000 crores and the company has a loan of about 5900 crores, so the loan is less.
Now what we were seeing that the company had more loans than the market cap, so can we invest in this company. You have to see a lot of things. What do you see as the future prospect of the company?
Now India is going to produce clean energy, so if I see the performance of Coal India forth next 10 years, then it has given a negative return of 22%, which means its share price has not increased.
It is not that the company is not doing business, its earning per share, the company’s earnings are being done, it is of 28.17, its Patio is 6.82, which is all right, but overall the price of the company’s share, the market could have given more than this.
Why could it have given, if the company’s future was very good, let’s say there was such a share here, like if someone talks about Tesla, then Telis running on a lot of Because in the future it seems that the company can outperform lot, but how much coal India’s future is in darkness and how much light it is, it depends on what the company does.
If it is doing coal business, then it is possible that in the coming time we will not be very dependent on it. In the last year, there are 33% returns, but despite that, the share has been falling for 5 years. In the last year, it has shown a little growth, so you will invest, for that you have to see a lot of things.
Now you have to invest by looking at the dividend or not, you have understood this. Now what do I do, I tell you. I care more about how much the company will grow. There are many companies that give little less dividend, but it does not matter. The company’s growth trajectory should be very good and if the company grows according to my calculations, then the share price will increase. So youkan earns in two ways here.
One is the share price, which we call asset appreciation. If asset appreciation is happening, then I will earn. As I said, if the share price is100 rupees and the share of 100 rupees is 500 or 5000 over the years, I mean I do not know that in a month, two months, five months, if I talk about the long term and the share price increases, then it is good for me. And the second here is dividends. Good companies give you dividends continuously.
For example, I am not giving you any suggestion, but youkan do your own analysis. Like you invest in Dabur, invest in Britannia, invest in Tics there are many such companies in India, there is Pixelate, you will get Tata Steel, which is paying good dividends, but whenever you invest, you have to do your own analysis. Here I take one more example of ITC. So ITC is the favorite stock of many people.
Now if you look inside ITC, then in the last few years, the company has given more than 40%returns. Its dividend yield is 3.94%. Again, if the company grows, then the dividend yield does not matter that much, but again ITC is giving good dividends. This is also considered good dividend yield.
If a company is giving less than 1%, then it becomes insignificant, but here there is one more aspect that I have to explain to you that whenever the company will give you dividends, then what will happen, understand this.
Whenever the company will give you dividends, it has taken out money from its profit, youkan says its treasury and given it, then the value of the company has decreased. If we take the example of Indian Oil, then if you think about dividends, even if you know about the ex-dividend date and you are thinking that I will buy it before the ex-dividend date, the dividend will come, I will sell it, what will happen after that.
You have to understand that whenever the company gives dividends, in the share price of the company, you will see in most of the companies that after the dividend, there is a slight correction. There are good companies, the price recovers, but this correction is coming because the value of the company has decreased.
Suppose the company has 10,000 crores and out of 10,000 crores, it has given 2000 crores, so now the company has 8000 crores left, so if 8000 crores are left, then its effect will definitely come on its share price, so it was important for youth to understand this. So I hope today in this blog I have told you a lot about dividends.
Now there is one calculation left, I will tell you that suppose you invest 1 lakh rupees today, you have to invest in 10 different stocks, your investment is of 10,000, so today you may get a very small dividend.
You may say that I got a dividend of 500 from a company, from someone it came to 200, so you can say that I am getting a very small dividend, what difference does it make. For example, if someone had invested in Tata Steel, Tata Steel has recently paid a dividend, so you must have got a dividend of 400 on the investment of 10,000.
So now what I want to tell you, if you feel that this 400, 200, 500is small, then for now you understand that your investment is also very less. You may feel that in a year I have only got a dividend of 4000 on 1 lakh, but I would like to tell you that as your holdings are made, the share price is increasing,
the company is making more profit, then in the coming time, the company will give more dividends, so if the company gives more dividends, then it could be possible that in the coming years, your investment of 1 lakh, you will get dividend of 1 lakh every year, and this is a little bit of my vision, I am not focused on dividends, but yes, because I have an investment in good companies, companies keep giving some dividends and I know that my portfolio is well made,
so over the years, the portfolio have today, I will get that much money every year as a dividend, which will become my passive income, so I hope you have understood this concept, I have also tried to tell you how dividends can be trapped for you, and now there is one more question,
I will take that too, because once I give complete information, how much tax will be applied on dividends, many questions will come in your comments, so I know from that that their answers should be given, so now let’s understand that if you get a dividend of less than 5000,
the company has calculated it and your dividend is less than 5000,then no TDS will be deducted on it, TDS means tax deducted at source, but in today’s date, the liability of tax has become on the investor, the one who has invested, the shareholder has to deposit tax
, now you do it according to your income slab, if it is less than 5000, then the company will not deduct TDS, but if your dividend is more than 5000,then the company will deduct10% of TDS and send you money, and after that you have to pay tax according to your tax slab,
so this is one thing and it depends on each company, on individual companies, so if you have multiple investments, someone has to get 5000,someone has to get 10000,someone has to get 2000, so from where you have to deduct 2000,4000 or less than 5000.income, your TDS will not be deducted, but if it is more than5000, then TDS will be deducted.
After that, for now, this is the thing that your dividend income comes under your other income, so the way you come to the tax slab, you have to pay tax on it in the same way.