Dividend Yield Stocks-Stable and Consistent returns for risk averse investors
The average Indian Investors are risk adverse. They look for stable and consistent return. This is the prime reason that fixed deposit and small saving schemes are most popular investment option in India. Individuals stay away from stock market as they are afraid of the volatility of stock market. You may not invest in High Value stocks which gave 70% return, but you can invest in stocks that give high dividend as a steady income to investors.
Dividend yield is the amount of dividend per share divided by the price of that share. The higher the dividend yield, better it is for investors to invest in the stock. In times when the stock market is going down, any drop in the price of the stock that is paying a dividend leads to higher dividend yield. This in turn attracts more investors, which often reverses the falling trend in the stock even if the market is still falling.
A strategy to target high dividend stocks has two advantages. For one, this is a conservative approach with less chance of a loss. Secondly, this also brings in a process of asset allocation which is in-built and self correcting. In a rising market, with higher stock price, dividend yields automatically fall, while in a falling market, dividend yields rise.
Historical studies have shown that dividend yield funds usually do well in all type of market conditions except when there is euphoria on the bourses. So in a euphoric market, there are chances that dividend yield shares may lag in their performance compared to other shares.
While a stock market crash is what every investor would wish to avoid, it does offer an opportunity to invest in companies with good management and a consistent dividend track record.
Another incentive to hunt for high dividend yield stocks is the fact that in India, dividends are tax free. in the hands of shareholders. Therefore, stocks with dividend yield of four or higher should be on investors’ radar.Care must be taken, however, to segregate companies that show a high yield due to one-time special dividend.
Investors can look at companies that pay high dividends rather than the ones which are expected to grow in a big way. Dividend yield stocks typically do not witness significant upmoves or downfalls, offering some cushion against market volatility. Moreover, these are typically cash-rich companies that pay dividend once or twice every year.
Long-term investors can consider some extremely safe large companies paying good dividends. For instance, NMDC’s cash is about half of its current market capitalisation. Being a government company, it is highly unlikely the dividend per share will fall from current levels. Its extremely rich reserves is another positive.The same is the case with the likes power financing companies such as Rural Electrification Corporation.
However, one should put certain checks in place before choosing investment ideas on the basis of dividend yield. Investors should look at their prospects and pick stocks having reasonably healthy earnings visibility.
The trend in profits is important, especially to gauge if there is any prolonged slowdown in the same, as it could mean that the company might not be able to pay similar dividends in future. Factors like the industry a company operates in, its growth potential, substitutes that could be potential threats to a company’s products/services, etc., need to be considered.
While a low debt/equity ratio (applicable in case of non-finance companies) is crucial, many experts say consistent and healthy operating cash flows are crucial indicator of the company’s financial health, as it indicates the real cash a company is generating. For instance, the trend in a company’s rising profits might appear attractive, but if it is doing so by pushing inventories at the dealer level (enabling it to book sales and profits) the profit might not be real. Hence, the cash it generates is a crucial indicator.
We have identified 14 stocks which offer high dividend yields and are reasonable safe to invest. Even if the stocks were to tank these stocks offer good protection to downside risk apart from rebound in stock prices when the bear hug reverses.
To Know the 14 high dividend yield stocks reply here or sms your mobile number here or missed call to 9740080851 number.