The Hindu Business Line : Dividend yield stocks back in vogue

WITH the stock market on a downward move, stocks brokers have now turned to defensive stocks providing good dividend yield. Their argument is that dividend yield stocks not only help in constant flow of income (that too tax-free) but help avoid capital loss as well.

Several companies, from both A and B-1 groups of the BSE, have dividend yield of over six per cent based on the latest dividend announcement. This is better than the one-year return on fixed deposit for any AAA-rated instrument, according to brokers.

Interestingly, the dividend yield of banks and NBFCs is higher than the interest rates offered by them on one-year fixed deposits.

Investors with medium-term outlook have now started looking at dividend yield stocks, according to Mr Nikhil Thacker, Assistant Vice-President (Research), Asit C. Mehta Investment Intermediaries.

"They (dividend yield stocks) are defensive stocks and are good for investors in a falling market. Moreover, these stocks lose less than other stocks in a falling market."

Some of the stocks providing yield over six per cent are Paper Products (7.56 per cent), SRF (6.99 per cent), Marico Industries (6.49 per cent), Mirza Tanners (9.56 per cent), Chambal Fertiliser (6.86 per cent), and Varun Shipping (8.10 per cent).

Banking and NBFCs in this category include PNB Gilts (10.99 per cent), SREI International Finance (9.09 per cent), City Union Bank (9.09 per cent), Union Bank (6.71 per cent), and Andhra Bank (6.51 per cent).

Brokers said that the concept of dividend yield is popular in the Indian context especially during June-September when most companies pay out dividends.

Effectively, it means that current investment in stocks will have to be made with a few months.

Besides, there is always the possibility of capital appreciation in the run-up to the full year's result and the likely dividend announcement.

However, some brokers said that there is the possibility of capital loss, which could be more than the dividend yield in falling market.

To overcome this situation, Mr Thacker said that investors should not buy such stocks "in one day. Averaging can be done at lower prices and they should adopt buy and hold strategy".

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