{"id":6646,"date":"2022-01-27T17:48:54","date_gmt":"2022-01-27T12:18:54","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=6646"},"modified":"2022-05-25T18:01:47","modified_gmt":"2022-05-25T12:31:47","slug":"biggest-misconceptions-about-dividend-stocks","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/biggest-misconceptions-about-dividend-stocks\/","title":{"rendered":"3 Biggest Misconceptions About Dividend Stocks in India in 2022"},"content":{"rendered":"\n<p>Many retired folks and individuals often sustain themselves off the interest earned on <a href=\"https:\/\/www.tickertape.in\/blog\/alternatives-to-fixed-deposits\/?utm_source=blog&amp;utm_medium=article\">fixed deposits<\/a> or public provident funds. The more financially savvy folks park some money in <a href=\"https:\/\/www.tickertape.in\/blog\/cash-dividend-vs-stock-dividend\/\">dividend<\/a> stocks, hoping to live a life of leisure on this passive income.&nbsp;<\/p>\n\n\n\n<p><a href=\"https:\/\/www.tickertape.in\/blog\/equity-investment\/?utm_source=blog&amp;utm_medium=article\">Equity investments<\/a> yield can be measured either via an appreciation in the value of the stock or via dividends (if the company pays out any). Stocks that consistently pay dividends are called <a href=\"https:\/\/www.tickertape.in\/blog\/dividend-investing\/\">dividend stocks<\/a>.<\/p>\n\n\n\n<p>But are dividend stocks meant only for those looking for passive income? Do they offer low returns? Let\u2019s explore this and more as we demystify the 3 biggest misconceptions about dividend stocks!<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/biggest-misconceptions-about-dividend-stocks\/#Dividend-stocks-are-risk-free\" title=\"Dividend stocks are risk-free\">Dividend stocks are risk-free<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/biggest-misconceptions-about-dividend-stocks\/#You-should-always-invest-in-high-dividend-yield-stocks\" title=\"You should always invest in high dividend yield stocks\">You should always invest in high dividend yield stocks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/biggest-misconceptions-about-dividend-stocks\/#You-can-get-better-returns-with-growth-stocks\" title=\"You can get better returns with growth stocks\">You can get better returns with growth stocks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/biggest-misconceptions-about-dividend-stocks\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"stocks\"><span class=\"ez-toc-section\" id=\"Dividend-stocks-are-risk-free\"><\/span>Dividend stocks are risk-free<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There is no such thing as a free lunch, and all stocks (yes, even <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-dividend\/?utm_source=blog&amp;utm_medium=article\">dividend<\/a> stocks!) inherently require you to undertake a certain level of risk. Dividend stocks may appear safer due to their regular payouts, but they represent <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">equity<\/a> ownership in a company. And no equity ownership is \u2018risk-free\u2019 or guarantees assured returns.&nbsp;<\/p>\n\n\n\n<p>All <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/?utm_source=blog&amp;utm_medium=article\">equity<\/a> stocks have either a systematic risk or a company-specific risk. The systematic risk arises from various economic conditions. An apt example here could be a breakdown in supply chain arising from the Covid-19 lockdowns or could be specific to an industry such as the <a href=\"https:\/\/www.tickertape.in\/blog\/semiconductor-shortage-maruti-suzuki\/?utm_source=blog&amp;utm_medium=article\">semiconductor chip shortage<\/a>.&nbsp;<\/p>\n\n\n\n<p>The company-specific risk arises from factors that are internal to the company. For example, a poor distributor network in the FMCG space or a labour union strike. These risks exist across equity stocks whether they pay out regular dividends or not.<\/p>\n\n\n\n<p>While dividend stocks may seem to offer a reliable source of income to investors, these companies are equally volatile and susceptible to market risks. In the same vein, you must also know that while certain companies do have an established dividend policy, they can suspend dividends at wish, even if they have a healthy dividend payout policy.<\/p>\n\n\n\n<p>In such a scenario, if you depend on income from dividends, you may find yourself in a tight spot.&nbsp; In short, dividends cannot be guaranteed, and they are not risk-free.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"invest\"><span class=\"ez-toc-section\" id=\"You-should-always-invest-in-high-dividend-yield-stocks\"><\/span>You should always invest in high dividend yield stocks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/www.tickertape.in\/blog\/dividend-yield\/?utm_source=blog&amp;utm_medium=article\">Dividend yield<\/a> measures the dividend paid vs. the market price of the stock in percentage terms. When the goal is to identify the right dividend stock to <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> in, it may appear that the highest dividend yield stock is the right one to pick. However, judging a book by its cover may prove costly here.<\/p>\n\n\n\n<p>Let\u2019s take a look at an example. Company A offers a 7% dividend yield on an Rs. 100 stock that implies a payout of Rs. 7. Company B offers a 5% dividend yield on an Rs. 180 stock that implies a payout of Rs. 9. As you can tell, a higher dividend yield doesn&#8217;t necessarily correspond to a higher dividend payout &#8211; the market price of the stock plays an important role here.&nbsp;<\/p>\n\n\n\n<p>The lower market price of Company A may also reveal lower expectations of future prospects priced in by the market participants. In this case, a higher dividend yield would not be of much use if future prospects do not seem positive and the company has to suspend paying dividends altogether. Hence dividend yield value cannot be the only deciding factor.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"returns\"><span class=\"ez-toc-section\" id=\"You-can-get-better-returns-with-growth-stocks\"><\/span>You can get better returns with growth stocks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Broad generalizations are typically difficult to withstand in financial markets, and so is the case with this popular misconception. Each stock must be evaluated holistically.<\/p>\n\n\n\n<p>When speaking of <a href=\"https:\/\/www.tickertape.in\/blog\/is-it-right-to-pay-a-higher-price-for-a-growth-stock\/\">growth stocks<\/a>, these may see higher appreciation, but the steady value appreciation of dividend stocks and the dividends combined may outperform growth stocks. In fact, <a href=\"https:\/\/seekingalpha.com\/article\/3997749-dividend-stocks-outperform\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">a study<\/a> by famed Dartmouth professor Kenneth French showed that dividend stocks outperformed non-dividend-paying stocks on average from 1927 to 2015.&nbsp;<\/p>\n\n\n\n<p>Investors need to clear the misconception that growth stocks can pay better dividends. The truth here is that dividend payout by a company will depend on several factors ranging right from the company\u2019s performance to economic conditions to future growth plans (A company may wish to reinfuse profits in the business).<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Dividend stocks can be a great addition to your <a href=\"https:\/\/www.tickertape.in\/blog\/ways-to-diversify-your-portfolio\/?utm_source=blog&amp;utm_medium=article\">portfolio<\/a> and serve as additional returns. But breakthrough the misconception that dividend stocks are risk-free and are higher from growth stocks. Also, higher dividend yield need not translate into higher dividends as market prices may vary. Do thorough due diligence and only then invest in any stock or scheme.&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Are dividend stocks really a safe and sound option? Learn about the 3 biggest misconceptions about dividend stocks. Click here to make a wise investment decision today!<\/p>\n","protected":false},"author":45,"featured_media":6648,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[9,1749],"tags":[1249,15],"acf":[],"modified_by":"Neera Bhardwaj","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/01\/07-2.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/6646"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/45"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=6646"}],"version-history":[{"count":3,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/6646\/revisions"}],"predecessor-version":[{"id":8781,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/6646\/revisions\/8781"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/6648"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=6646"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=6646"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=6646"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}