Saturday, July 25, 2009

Colombo Stock Exchange (CSE) Sri Lanka - Methods of profiting

Investing in shares can give you returns in two key forms:

1.    Dividends - This is where a company distributes a proportion of its annual earnings to the shareholders. Dividends at all times are distributed as a percentage of the nominal/par value of a share. For example, the par value of Caltex Lubricants Lanka Ltd is Rs. 10; for financial year 2005 the company declared 77.5% dividends. This implies that the company has declared 77.5% of the par value of the company’s stock, equaling to Rs. 7.75 per share.If you take present scenario Chevron formerly known as Caltex is distributing more than Rs 10/ as dividends per annum for each & every share holder. Stocks in the likes of LLUB, CTC, DOCK, NEST,HNB,COMB are categorized as high dividend paying counters.
2.   Capital Gains – This is where an investor makes a gain by buying at a lower price and selling at a higher price. The price of a share is chiefly determined by the earnings of the company. For example if a company made a net profit of Rs. 100 million for the financial year 2008 and then reinvested the profits in the business and was able to generate a net profit of Rs. 140 million for the subsequent year; the demand for the share will appreciate causing the share price to rise. By investing in growth companies over a long investment horizon, will certainly give higher returns than many fixed income securities.

Even though fixed income securities give a known return, (in the range of 13.5% for 12 months fixed deposit). However, the CSE on the other hand has provided returns over and above the returns offered by the fixed income securities over the years. CSE delivered  with 27.55% for the year 2005 and 24% for the first nine months of the year 2006, indicating the genuine wealth creation and preserving wealth of investors.

However rate of return offered by the Colombo Stock Exchange in future will be definitely high after the end of 30 year old civil war in the country.

Hence this is the best time to invest in COLOMBO STOCK EXCHANGE SRI LANKA . 

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