InvestorQ : What is a dividend and how to choose funds that pay timely dividends? How can I create a regular income from dividends so that I can make a retirement plan?
Aastha Awasthi made post

What is a dividend and how to choose funds that pay timely dividends? How can I create a regular income from dividends so that I can make a retirement plan?

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sara Kunju answered.
2 weeks ago
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A dividend is the payment public-listed companies make to their shareholders for putting in money to the company, out of the earnings of the company. The dividend payout is generally determined by the company’s board of directors. Companies can pay dividends in the form of cash or in the form of shares such as right shares or bonus shares. When a company announces a dividend, its impact is visible on the price of shares of that company. 

Even though the board of directors determines the payment of dividends, it shall be approved by the shareholders in their meeting. Besides public companies, various mutual funds and exchange-traded funds (ETFs) also pay dividends. 
How to choose funds?

It depends upon the companies, generally, the companies that are established and have more predictable profits are the best dividend payers. These companies pay regular dividends because they seek to maximize shareholders apart from normal growth. One should look for companies that have tremendous dividend-paying history, and more specifically in the industries:

  • Basic materials - FMCG
  • Banks and the financial sector
  • Healthcare and pharmaceuticals
  • Oil and gas

However, it may happen that even companies with good dividend history, sustain from paying dividends as it is solely the board’s and shareholders’ decision. Sometimes, companies have sufficient funds, but they decide not to declare a dividend, so, it is completely discretional.

I believe you should not rely on dividends for your retirement plans instead, you could invest in fixed income-bearing securities like PSU bonds or corporate bonds with good credit ratings. It will help you achieve your earnings target, and your base money would be safe till maturity. Investment in these securities should be made based on your time horizon, as various maturities are offered on these bonds.

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