- Dividend Yield stocks are favourites of those investors who invest for Long Term, based on fundamental.
- These stocks declare dividends – mostly on annual basis.
- These stocks are consistent in their dividend payouts. And their dividend payout policy are spelt out in their annual report.
- Hence it is better to invest in these stocks, in anticipation of dividend, between March and mid May.
- And it is sensible to invest in these stocks at low price, since the return on Investment (ROI) by way of dividend : shortly called as Dividend yield, is maximum if the purchase price is cheap.
Positives of Dividend Yield Stocks:
o Regular cash flow in form of dividend.
o Since dividends are declared out of Profit after Tax (PAT), dividend declaring companies are usually profitable. There could be exception when dividends are declared out of exceptional income / other income. It is better to invest in dividend yield stocks who have healthy operating profit.
o High dividend yield stocks provide downside protection: If the stock price plunges, dividend yield goes up. This is seen as investment opportunity by fresh investors. This renewed buying helps the stock to recover on the trading floor. Hence there is chance of early recovery due to genuine buying interest.
o Hence such stocks are ideal for Risk-averse Investors (eg:senior citizens) and new investors
o DYS are less volatile (low beta stocks).
o Investors in DYS are usually long term investors. And such stocks attract higher delivery percentage when compared to intraday volumes. Speculators usually donot prefer DYS.
Negatives of Dividend Yield Stocks:
o Companies with high dividend yield could have limited opportunities to grow their business. Hence these companies payout of the cash profit in form of dividends.
o Hence such stocks appreciate very slowly in the market.
But investors should keep in mind that Stock Market Investing is not only about Risk taking and benefiting out of capital appreciation. It is better to have a blend of capital appreciating stock and high dividend yield stocks.
Some Stocks which are scheduled to declare healthy dividend in April-May 2012 could be:
o Reported 14.3% decline in PAT
o Announced 130% dividend on Face Value of Rs.2. That is Rs.2.6 per share as dividend.
o Earning Per Share (EPS) is Rs.7.18 for CY 2012. Hence, Rs.2.60 on Rs.7.18 works out to 36.2% Dividend Payout Ratio (percentage of earnings paid out as dividend)
o Current Market price of PPL is R.63. Rs.2.6 dividend on Rs.63 works out to : 4.12% Dividend Yield (Return on Investment).
o PAT of Rs.178.3 crores from 1-Apr-2011 to 31-Mar-2012
o PAT of Rs.191 Crores from 1-Apr-2012 to 31-Dec-2012
o Hence the probability of earning higher profit and atleast maintaining the same dividend as last year is high, provided the company does not spend money on capital expenditure.
o Last year, it paid dividend at 175% on face value of Rs.2. That works out to Rs.3.5 per share.
o At current market price of Rs.97, dividend yield works out to 3.6%
Bank of Maharastra:
o Just like above mentioned situation, BOM’s PAT for 9 months of current year is more than entire PAT of last financial year.
o At current market price of Rs.53, dividend yield works out to 4.1%
Few Large Cap Companies with decent dividend :
o Coal India: 3.1%
o Oil India : 3.4%
o REC : 3.1%
o Union Bank: 3.5%