Safest Bet!

We with a mediocre perception, often know only two kinds of stories in the stock market, first is the success story about people who became rags to riches or other type of stories where people have become riches to rags. And after hearing such stories we either blame our faith, that we are not destined to become rich or we want to hide ourselves that we do not want to take risk and loose whatever we have.

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Many people with whom I interact don't even want to enter the stock market as they have high faith on the rumor that stock market is a place to lose money. Such kind of rumors are usually spread by the people who have never even placed a single trade in the stock market, strange but true.

However, trust me stock market is much more than that. If we can control our greed, and have the ability to take calculated risk this could turn out to be a blessing for people who want to earn more then what fixed investments has to offer.

Here I would like to introduce “SAFEST BET” in the stock market which will be supported by few examples. Here Safest bet means the stock which can earn decent returns and have low risks involved. Now question is how to identify these stocks? For me stocks which are paying high dividends and being traded in good volumes are the safest bet.

Consider the example of NHPC, this stock has the Face Value of Rupees 10 and Market Cap of approximate 32000 Crores. Now here two things are important, Face Value and the Market Cap. Face Value is important because Dividends are declared as a percentage of face value. If Market Cap of any stock is high, that means that stock cannot be manipulated by few traders.

NHPC has declared the dividend of 17%, which comes out to be 1 rupees and 70 paisa per equity share, when the price of the stock was approximate 27 rupees. Hence the dividend yield comes out to be around 6%. Now as soon as this high dividend was declared, stock had a run of almost 9% on the same day. So in total you earn 6% + 9%.

If we want to exit after Ex-Dividend date, then it is recommend to wait for some time after EX-Div is done, as stock usually fall with the same amount of Dividend declared to make correction in stock price. However, stock usually bounces back to the level within a month. This is how we can earn handsome returns on the stock by playing the Safest bet logic.

Similar examples we can see in the stocks like Coal India, REC etc. These people who make profits based on the dividends are called as "Dividend Hoppers".

Disclaimer: Please consult your financial advisor before making any investment decision.

Thanks

Rohit Soni

+91 9920134545