Let us narrate here the story of Shyam Dave who lived a carefree life in the quiet town of Jabalpur. Content with his leisurely days, Shyam found solace in the security of his investments, particularly in government bonds that earned him a modest 6-7 per cent annually. However, Shyam's tranquil existence was soon disrupted by the well-meaning advice of his friend Jay Khote, a zealous advocate of stock market investing. Jay, eager to see Shyam maximise his returns, suggested that Shyam divest from his bonds and plunge into the world of stocks. However, despite Jay's insistence, Shyam hesitated.
This was because of his aversion to risk and his reliance on the steady cash flow provided by his bonds. Unperturbed, Jay presented Shyam with a list of 10 stocks boasting high-dividend yields, promising the allure of bond-like income with the potential for stock market gains. Buoyed by Jay's enthusiasm and the prospect of higher returns, Shyam dipped his toes into the stock market waters. Initially, his foray into dividend-paying stocks seemed promising with his portfolio boasting an impressive dividend yield of 5 per cent along with share price gain.
Shyam basked in the satisfaction of enjoying both income stability and capital appreciation. However, Shyam's euphoria was short-lived as troubles soon besieged his investment journey. To his dismay, he discovered that one of the companies in his portfolio failed to deliver the promised dividend. Worse still, he learned that the company was grappling with financial woes, leading to the suspension of dividend payments. Shocked by this revelation, Shyam realised the harsh reality: even seemingly stable dividend-paying companies are not immune to financial turbulence.
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