New Delhi Security-seeking investors are flocking to stocks that offer high dividend yields because grim interest rate outlooks and choppy markets prompt them to dump riskier, higher-growth stocks that Investors were dear in the easy-money days of the pandemic.
High dividend yield becomes a major parameter for investors to consider during market downturns as it ensures that they continue to receive payouts and preserve capital. The economy is facing several challenges, including rising inflation, tightening monetary policy, weakening rupee and higher crude oil prices, with analysts favoring high dividend yielding stocks such as state-run utilities and banks. take.
“Dividend yield stocks provide added comfort while investing in volatile markets,” said Nishit Master, Portfolio Manager, Axis Securities Ltd.
A large number of firms have rewarded investors with attractive dividends. Data from HDFC Securities shows that stocks like Vedanta Ltd., Bharat Petroleum Corp Ltd. and REC Ltd. have paid dividend yield of more than 10%.
Investing in dividend yield stocks is seen as a defensive strategy. Still, it is not that investors in such stocks will not face capital erosion, but the dividend yield protects their return on investment, analysts said.
He said, “Indian stock market has been passing through a period of uncertainty for the last few months. Mitul Shah, head of research, Reliance Securities, said, “It has declined 13% from its peak in October. Growth stocks have been penalized, and many of these stocks have corrected significantly. FMCG (Fast Moving Consumer) ) like defensive sector goods) and information technology have also improved. In such volatile phase it is advisable to invest in high dividend yielding stocks.”
Deepak Jasani, head of retail research at HDFC Securities, said that while selecting such stocks, investors should also consider whether the last paid dividend was a lump sum payment.
In some cases, companies reward investors with a lump sum payment. For example, Bharat Petroleum last year paid income in the form of dividend from treasury stock sale and stake sale of Numaligarh Refinery Ltd.
In addition, investors need to consider the stock’s current year earnings per share (EPS), Jasani said. He added that if the EPS is less than the dividend, it is better to avoid it, and if it is more than the dividend, then this may be the right time to invest.
The Master of Axis Securities said that there is also a need to be mindful of the stability of the company’s earnings. For example, a steel maker may have paid a decent dividend last year, but this year the dividend may be likely to fall if the company’s earnings are affected by the imposition of export duties or by low margins, either low realizations or high margins. due to cost. Or both. Experts said investors need to look at financially sound companies with strong balance sheets, stable margins and healthy cash flows.