Should to invest in Differential Voting Rights (DVR) Shares that offers additional dividends?
Differential Voting Rights (DVR) Shares of companies are catching attention to investors these days. DVR Shares are nothing like ordinary shares, but have fewer voting rights. These DVR shares offer additional dividends compared to ordinary shares dividend. What are these Differential Voting Rights (DVR) Shares? Which companies are issuing these DVR Shares? Should you invest in such DVR shares that offers additional dividends?
What are Differential Voting Rights (DVR) Shares in India?
DVR Shares are like ordinary shares, but have fewer voting rights. Company can dilute equity without reduction in Promoters stake with this option. DVR shares are for small investors who rarely exercise their voting rights. Small investors invest in shares only to make money and not to exercise any management control. In such case, they can invest in DVR shares.
What are the features of DVR Shares?
- Company can issue DVR shares to small investors for equity dilution.
- DVR shares offer additional dividend compared to ordinary shares. E.g. Tata motors DVR offers 5% additional dividend compared to ordinary shares dividend. If they declare 4% to ordinary shares, DVR share holders would get 4.2% dividend.
- DVR Share are traded at lower the price of ordinary shares. The gap is as high as 30% to 45%.
- There is high correlation between DVR share and ordinary shares. They generally go hand in hand in share price, however with the gap.
- DVR Investors would have fewer voting rights.
- DVR Share trade at discounted prices and the gap can increase in future. E.g. Tata Motors ordinary share price is Rs 418 and Tata Motors DVR share price is Rs 294 (gap of 30%)
- DVR Shares are trading at low volume.
- Investors lack awareness about DVR shares, hence they are not fancy yet in the market.
Which companies have issued DVR Shares in India?
Currently, Tata Motors, Pantaloon Retail, Gujarat NRE Coke and Jain Irrigation has issued DVR Shares in India.
- Tata Motors ordinary share price is Rs 418 and Tata Motors DVR share price is Rs 294 (gap of 30%)
- Pantaloon Fashion ordinary share price is Rs 218 and Pantaloon Fashion DVR share price is Rs 120 (gap of 45%)
- Gujarat NRE Coke ordinary share price is Rs 2.94 and Gujarat NRE Coke DVR share price is Rs 2.10 (gap of 29%)
- Jain Irrigation ordinary share price is Rs 67 and Jain Irrigation DVR share price is Rs 43.5 (gap of 35%)
Should you invest in Diffential Voting Rights (DVR) Shares?
There are several factors that affect our decision to buy DVR Shares. These are like any other ordinary shares, but offers high dividends. You can expect around 5% additional dividends. In foreign markets, DVR Shares trade at 10% gap compared to ordinary shares. However in India, these are trading at gap of 30% to 45%. This is only due to lack of awareness. When the awareness among investors increase, the gap would reduce and share price appreciation would happen. If you feel any of these stocks would appreciate in future due to good performance and if they are currently available at huge gap, you should invest in such DVR Shares.
E.g. Tata Motors DVR is trading at 30% gap compared to ordinary share price. Once the awareness is created and it is in par with international markets, the price gap may reduce to 10%. You may get profits to the tune of 20%. But you need to have patience.
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Differential Voting Rights (DVR) Shares that offers additional dividends
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