” In just two decades two lakh rupees not just doubled but grew ten times. ITC returned more than 1000% in just 20 years. We doubt if any other kind of investment vehicle can provide this kind of return in such a short time! “
A Brief History of ITC
ITC or the Indian Tobacco Company was incorporated on the 24th of August, 1910 under the name Imperial Tobacco Company. Later it was changed to Indian Tobacco Company after Independence from the British Raj.
ITC went public in 1974 and will go on to be one of the brightest shining stars of the Indian Stock Market and ITC Share Price Movement or the technical term price action has shown its worth.
ITC Share Price And Returns Over the years
Now let us talk about ITC Share Price and Dividend Declared by the company over time.
Before we start with some mathematical jargon about the Share Price and Dividends, you should know that all the numbers used here are post-2016 bonus issue. Or if we are engaged in pre bonus prices, we will mention that.
On the 3rd of January of the year 2000, ITC Share Price post bonus issue was 15.75 INR. Or, if you just go back in time, you will find the closing price of ITC Shares were 708.50 INR pre bonus.
Source – Official NSE Website.
Though Two Lakh Rupees was a huge sum of money back then for some people, for this example we are using two lakh rupees.
So, if you wanted to invest two lakh rupees in ITC Shares, then it would have fetched you 280 Shares of ITC.
And after the bonus issues on 21st of September, 2005 – 3rd of August, 2010 – 1st of July, 2016 on the ratio of 1:2, 1:1 and 1:2 respectively and a split on 21st of September, 2005, from the old face value of 10 to the new face value of 1, you would have been left with …
Investment Returns and Calculations
For all of you who skipped those maths classes, we will be explaining this part in a way so a two-year-old can even understand.
For the level of tolerance the internet has, we might mention that the “skipping of classes” part was just a joke.
You Started with 280 Shares of ITC.
Before the 21st of September 2005,
Number of Shares You had – 280 Shares.
After the Bonus issue on the 21st of September, 2005, on the ratio of 1:2,
*Info- Bonus on the ratio of 1:2 means you will get one extra share for every two shares held. If you held 2 shares of a particular company that declared a bonus on the ratio of 1:2, then after the ex-bonus date you will have (2 of your own shares + 1 extra bonus share = 3 shares) 3 shares.
Number of Shares You got – 280 / 2 = 140 Shares.
And the Split on the same date, 21st of September, 2005 on the ratio of 10:1
*Info- Split on the Ratio of 10:1 means, the company has split a single share into 10 different pieces.
Number of Shares You got – 280 x 10 = 2800 Shares.
So After the 21st of September 2005 you had in total – 2800 + 140 = 2940 Shares.
After the Bonus issue on the 3rd of August 2010, on the ratio of 1:1,
Number of Shares You have – 2940 + 2940 = 5880 Shares.
After the Bonus issue on the 1st of July 2016, on the ratio of 1:2,
Number of Shares You have – 5880 + 2940 = 8820 Shares.
And the closing ITC Share Price on the 3rd of January 2020 was 238.50 INR.
So Two Lakh Rupees invested on ITC for two decades turns out to be – Number of Shares x Share Price = 8820 x 238.50 = 21,03,570 Rupees. Or in words “Twenty-One Lakh Three Thousand Five Hundred and Seventy Rupees Only”
In just two decades two lakh rupees not just doubled but grew ten times. ITC returned more than 1000% in just 20 years. We doubt if any other kind of investment vehicle can provide this kind of return in such a short time!
ITC Dividend Declared And Returns
Till now we have only talked about ITC share price and we saw the kind of return it has generated over the past two decades.
But now we are going to talk about a much more interesting aspect of generating income from owning stocks, that is DIVIDENDS. A dividend is one of the most overlooked aspects of stock when calculating its return. But dividends generate the most wealth, given enough time.
As we talked about the ITC share price movement or the price action, we went twenty years back. But here, while discussing the dividends declared by ITC, for the ease of understanding and calculations we will be going just a decade back.
Before we start again with the mathematical jargon and calculations. Let us show you all the amount of money ITC declared as a dividend, starting from 2010.
|Date||Amount Declared as Dividend|
|9th June, 2010||10.00 INR|
|10th June, 2011||4.45 INR|
|11th June, 2012||4.50 INR|
|31st May, 2013||5.25 INR|
|3rd June, 2014||6.00 INR|
|3rd June, 2015||6.25 INR|
|30th May, 2016||8.50 INR|
|5th June, 2017||4.75 INR|
|25th May, 2018||5.15 INR|
|22nd May, 2019||5.75 INR|
In the above table, you saw a major fall in dividends in the year 2017 relative to the previous year 2016. That is because, if you remember previously when discussing ITC share price and its return, we saw that ITC issued a bonus on the 21st of July, 2016 on the ratio of 1:2. And ITC declared a dividend for the year of 2016 on the 30th of May, 2016.
So the dividend was declared before the issue of the bonus, and after the bonus, as the number of shares increased in a shareholder’s portfolio, the dividend amount decreased at the same rate. So it is not an anomaly.
Now let us engage in calculating how much return was generated just by the dividends declared by ITC from the year 2010 till 2019.
As previously calculated, we had 2940 ITC Shares on the 9th of June, 2010. And the dividend declared by ITC for the year 2010 was 10.00 INR.
So we would have received = Number of Shares x Dividend Declared Amount.
2940 x 10 = 29,400 INR.
And on the 3rd of August, 2010, ITC issued a bonus on the ratio of 1:1, taking the number of shares in our portfolio to 5880 Shares.
So if we keep on calculating the income generated just by the declared dividend of ITC, then it would look like
|Date||Number of Shares||Dividend Amount Received|
|9th June, 2010||2940 Shares||2940 x 10 = 29,400 INR|
|10th June, 2011||5880 Shares||5880 x 4.45 = 26,166 INR|
|11th June, 2012||5880 Shares||5880 x 4.50 = 26460 INR|
|31st May, 2013||5880 Shares||5880 x 5.25 = 30870 INR|
|3rd June, 2014||5880 Shares||5880 x 6.00 = 35280 INR|
|3rd June, 2015||5880 Shares||5880 x 6.25 = 36750 INR|
|30th May, 2016||5880 Shares||5880 x 8.50 = 49980 INR|
|5th June, 2017||8820 Shares||8820 x 4.75 = 41895 INR|
|25th May, 2018||8820 Shares||8820 x 5.15 = 45423 INR|
|22nd May, 2019||8820 Shares||8820 x 5.75 = 50715 INR|
So if we try to calculate the total amount of dividend received from holding ITC Shares from 2010 till 2019 then the amount would be,
And that would be equal to 3,72,849 INR or in words, ” Three Lakh Seventy Two Thousand Eight Hundred and Forty Nine Only “.
To generate this money all you had to do was, buy the ITC shares, sit and relax. That too in just ten years and investing Two Lakhs only.
Just to let you know, we have not reinvested those received dividends. If we would have reinvested those received dividends, then the income generated would have increased multi-fold. And in the real world, you should be reinvesting those received dividends. So that the snowball effect of compound interest can take place.
In the end, we can conclude that, given enough time, a small amount invested can grow your wealth many times. If we would have sold out our shares during the 2008 Financial Crisis, we would have missed out on a huge opportunity.
So it is important for INVESTORS who want to grow their wealth at an exponential rate, should not give any major attention to daily price fluctuation. Just keep an eye on your investment on a monthly basis.
And as the greatest investor of all-time Mr Buffet Said, “Our favourite holding period is FOREVER“- A principle to live by for every investor.
And if you want to know in-depth about investing in stocks and buying shares, you may want to read THE INTELLIGENT INVESTOR by Benjamin Graham, also known as the father of value investing.
Or if you want to know how to analyze a stock before buying, then do read Security Analysis by Benjamin Graham.
Or start with the words of Mr Peter Lynch, one of the greatest fund managers of Wall Street One Up On Wall Street.
You can also visit OUR RECOMMENDATION page for more.
Fun Fact- The greatest investor of all-time Mr Warren Buffet was taught by Mr Ben Graham, himself.
Disclaimer: The views, investment tips, presumptions, and calculations expressed on Moneypremier.net are not of the website or its management. This article is for Educational Purposes only. Moneypremier.net advises users to check with certified experts before making any financial decisions.