The Hindu Business Line : `Dividend-yield' stocks in limelight

HIGH `dividend yield' (the return in dividend terms per unit investment) has become the new investment theme for investors, and the current political uncertainty is only reinforcing it.

According to brokers and analysts, April-May is the right time to invest in stocks that look attractive on a `dividend-yield' basis as during this time of the year, high dividend-paying stocks hog the market limelight.

They said buying dividend yield stocks is good as investments in these stocks need be made only for a maximum of five months, with most companies paying out dividend between June and September every year. Moreover, the attractiveness of these stocks increases as dividend is tax-free.

According to Mr Paras Adenwala, Head of Equities, Birla Mutual Fund, "In every market, dividend yield stocks provide good investment opportunities." Birla Mutual was the first to come out with a scheme offering investment in companies that provide good dividend yield.

"Our experience with the scheme has been good since launch. The market has gone up more than 100 per cent, but the scheme has outperformed the market," he said.

"Companies that have a consistent track record of dividend distribution and reasonable growth in business tend to provide stable returns on investment over a longer period of time," said Mr Nikhil Thacker, Assistant Vice-President (Research), Asit C Mehta Investment Intermediaries.

"Moreover, in a rising market, these companies provide scope for capital appreciation; in a falling market, the share prices of these companies do not fall to the extent of losses recorded by market heavyweights, or the index itself."

But according to some analysts, there are risks associated with dividend yield stocks.

These include dividend announced by the company is lower than expected and the fall in the stock price could be more than the expected dividend gains.

Mr Thacker, however, said, "It is not possible to fully remove the risk, but one can always aim to reduce the extent of risk by analysing performance in terms of profitability, dividend track record and its future outlook."