The Hindu Business Line : Tata MF plans to launch dividend yield fund

TATA Mutual Fund has lined up a scheme based on the concept of dividend yield. At least 70 per cent of its assets will be under normal circumstances invested in stocks that provide high dividend yield.

Dividend yield may be defined as the ratio of aggregate dividend declared by a company for the previous accounting year divided by the current market price, the relevant time being the date of investment.

The proposed Tata Dividend Yield Fund, according to the offer document sent to SEBI for clearance, will choose scrips that have a relatively high dividend yield. The latter will be considered high if it is more than what was last released or published by the BSE.

Historically, high dividend yielding stocks provide a somewhat greater measure of protection in a falling market. It simultaneously offers some prospects of capital appreciation in an advancing market, leading to capital gains.

"Re-rating for such a stock is always a possibility due to its low price to adjusted book value ratio and its low market capitalisation," the MF has pointed out, adding that investment in high dividend stocks seeks to achieve better yield than what is available in interest bearing securities. At the same time, an undue exposure to the volatile stock markets can be avoided.

It is generally believed that high dividend paying companies are rich in terms of cash generations from their businesses. Also, high dividend yield indicates underpricing for the stock (in spite of the cash generation). This is said to be critical for unlocking potential growth for the stock price.

Expanding scope

WHILE many fund managers have in the past held positive views on dividend yield, not too many have actually ventured forth with products. The average investor, therefore, has not quite grown familiar with the theme, say MF circles. Among the fund houses that are said to have looked at it actively on various occasions are UTI, Pru ICICI and Chola.

Birla MF's Dividend Yield Plus, launched in February last year, has been the first to get off the block, its assets standing at over Rs 400 crore at the moment. In recent months, it has invested in a range of companies from across the sectors. Some of its bigger allocations have been to Indian Oil, Hero Honda, Gesco and MTNL.

According to the Birla MF's last quarterly disclosure, the dividend yield of the portfolio was 5.37 per cent as compared to the Sensex yield of 2.34 per cent. Higher dividend payouts and a declining market has "expanded the universe" for the fund, the MF stated.