4 Advantages to invest for long term in Stocks

In Stock Market there can be so many advantages and disadvantages but below are the 4 advantages of investing for long term,?

Bonus shares?:

At times some of the companies will issue bonus shares. It can be in the ratio of 1 share to existing one share or 3:2 or any number depending on the decision of board members.?

If a company is giving bonus it means they are positive about the future growth of the company. You will be getting extra shares and if you stay invested with additional shares the stock price will keep growing eventually more profit.?

Let us look at Bonus shares issued by Infosys and how your portfolio would have grown,

Investing 10,000 in 1993 and you received 100 shares

Company declared 1:1 shares in 1994 . Now 200 shares

Company declared 1:1 shares in 1997, Now 400 shares

Company declared 1:1 shares in 1999 . Now 800 shares

Company did share split in 1999 from 10 to 5 and you would be having 1600 shares

Company declared 3:1 shares in 2004 . Now 6400 shares

Company declared 1:1 shares in 2006 . Now 12800 shares

Company declared 1:1 shares in 2014. Now 25,600 shares

Company declared 1:1 shares in 2015 . Now 51,200 shares

At price of 1336 on March 26, 2021 the total worth of 10,000 invested in 1993 will be 6.8 crores

When a company is declaring Bonus, nothing is going to get changed in fundamental of the company.?

Dividend?:

When a company is performing better, management decides to share the profits with the investor’s and it is known as dividend.?

If a company is declaring consistent dividend then it is good sign to invest in such companies. You can invest in dividend paying companies to get something like returns every year. Though it is not mandatory for the companies to give dividends they provide year on year.

Dividend Yield is based on the Stock price.?

For example Cox & Kings are having dividend yield of 86% but their stock price is just 1.15 as on March 26, 2021. So don’t go by the Dividend yield % while investing.?

Dividend declared % can be looked at along with Face Value. Coal India is having dividend declared % of 125% on their face value of 10. Dividend yield of Coal India is 9.26.

Nestle India is having Dividend yield of 0.82 as the stock price is 16571 and Dividend % of 650% on their face value of 10.

If the stock price is declining, then the dividend yield % will look more. Another Common phenomenon is during bull rally the dividends for companies will come down as the stock price increases. During bear phase, again the dividend stocks keep rising.

Most of the investors will flock towards dividend paying companies during the fag end of bull rally to protect themselves from bigger loss.?

Some of the dividend paying companies every year are,

Coal India

NALCO

ITC

Bharat Electronics

Shriram

IOC

GAIL

ONGC

NHPC

Power Finance

If you look at the above list most are PSU’s. As Government is dependent on these companies for revenue, the dividends will be regular. Don’t expect big bang growth in these companies, enjoy the dividends in these companies.?

Again the company fundamental is not going to get changed once dividend is issued. Stock price decline after the dividend is issued as people who got into this stock for dividends will look to exit.

Stock Split?:

Stock Split is done to reduce the stock price and increase the number of available shares. I was holding Avanti feeds for a long time. During the bull rally of 2015 they had given bonus shares and also Stock split.?

Face Value of the stock will be 10 and during this stock split the face value will come down.

Infosys was done with stock split in 1999, where the face value of the company was brought down from 10 to 5. In this case, the existing shares will be doubled in the hands of investors.

Company fundamental doesn’t changes after stock split, only the number of shares increases.?

Right Issue?:

Share split will happen based on the ratio of 1:1 or 3:2 based on the board decision. It is done to increase capital for the company. Price of the stock will be brought down for raising capital.?

Mahindra & Mahindra financial services gave Rights issue On 22, July 2020 at discounted price of around 130. In March 26,2021 the stock went up to 206. Those who entered this stock would have made profit by now.?

Companies opt for this way to raise capital as it is easy to raise based on their past operations.?

Learn more about Stock market in my book "1 Page Stock Market Plan"