- Investors have been buying Majesco’s stock since declaring a dividend of nearly 20,000% on December 15th. However, according to analysts, this may not be a good idea.
- Business Insider spoke to some analysts tracking the stock and other smaller IT services companies to understand why now is a bad time to buy the stock.
- According to all, those who already owned the stock would benefit from the dividend, but if you bought the stock in the past few days, you’ve lost money.
There are people buying shares in Majesco, the company that sells software and other services to insurance companies in India since it passed a dividend of nearly 20,000% on December 15th. And it might not be a good idea to get into Majesco just for the sake of the dividend.
Business Insider spoke to some analysts tracking the stock and other smaller IT services companies to understand why now is a bad time to buy the stock.
According to all, those who already owned the stock would benefit from the dividend, but if you bought the stock in the past few days, you’ve lost money. It’s a signal for investors to sell the company instead of buying it, they said.
“There is not much left in the company”
Majesco had sales of nearly £ 3,200 following the sale of its stake in its US subsidiary Mastek. Most of the dividend came from the sale of the shares, with the company’s profits being distributed to shareholders as dividends.
“There’s not much left in the company,” said an analyst on condition of anonymity, citing compliance issues.
In addition to its software business, the company also has 1,100,000 square feet in Mahape, Navi Mumbai, “and that value is not for the company,” he added.
In a television interview after the dividend was declared, Majesco’s chief executive Farid Kazani said he was waiting for the property price to improve before he could sell it and that the money would be distributed to shareholders as well.
“Well, whatever the present value and the property value – it will be lowered to £ 40-50 based on market perception, but the present value is £ 36,” said another analyst.
Your dividend profits are taxed at the tax rate
Those who receive the dividend have to pay income tax, and if you sell after that there is capital gains tax too if there is a profit.
“If you buy the stock at a current price of £ 980 and receive a dividend of £ 970 after the cut-off date, you will simply be subject to dividend tax as per your tax return and capital gains (if any) will be taxed at 15%,” the stated second analyst.
The difference in tax expense can be huge. To make it easy, when an investor buys the stock at the current price and drops below the 30% tax bracket. You’ll have to pay 30% of the dividend as income tax and only have £ 679 left – while the stock is currently trading at £ 964.
Two days before the cutoff date, the stock will automatically adjust and the £ 964 you originally invested in the company will be adjusted to £ 50 (maximum). So an investor would have a loss of almost £ 230 if they bought the stock now.
Until last year, dividends were tax-free. However, a new provision recently made them taxable under the heading “Income from other sources”.
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