The Hindu Business Line : Dividend yield stocks may turn attractive

The declining equity market may rekindle the interest of a section of investors in a time-tested theory: dividend yield. As fund managers and investment advisors agree, the concept of dividend yield should find a fresh set of takers, especially if stocks continue to remain wildly volatile.

Whether dividend yield funds will be able to garner fresh assets is anybody's guess, feels Mr A. Balasubramanian, CIO, Birla Sun Life MF, adding that the idea should go down well with some of the more perceptive investors. "This is not to say that diversified growth funds that are not bound by such principles will not find new investors. However, one now again expects them to appreciate that there are funds that are actually based on such a concept," he said.

As things stand, there are about half-a-dozen dividend yield funds. These are managed by UTI, Birla Sun Life, Tata, Principal, ABN Amro and ING Vysya. These funds, it is observed, do not manage a lot of money — which leads some sections to point out that the idea does not have too many subscribers and that the potential to become bigger entities is strong. In the same breath, the potential of dividend yield stocks is also underlined.

Dividend yield funds, according to Mr A.K. Sridhar, CIO, UTI MF, often appeals to the conservative mind because of their underlying principle. "The trend may now be replicated," he notes, adding that such funds need a proper blend of stocks, representing various segments of the economy. The reference is to UTI MF's own scheme (fund size: over Rs 400 crore), which has had exposure to sectors such as energy, manufacturing, cement, fertilisers, financial services and auto.

Stockbroking firm SKP Securities maintains that several high dividend yield stocks have lately turned attractive, courtesy waning sentiments. Its calculation (based on July 25 figures) points to a clutch of scrips with dividend yields of 5-7 per cent.

The examples cited include Chennai Petro, with a price of Rs 172.70 and a dividend yield of 6.95 per cent; Allahabad Bank, with a price of Rs 59.55 and a dividend yield of 6.72 per cent; and Proctor & Gamble, with price of Rs 850.30 and a dividend yield of 4.7 per cent.

The current crop of high dividend yield stocks cuts across industries, one of which is banking and financial services. Companies such as Andhra Bank, Cholamandalam DBS, Dewan Housing Finance and LIC Housing Finance are part of the list worked out by SKP.