The Hindu Business Line : Tata Dividend Yield: Hold

Investors can retain the units of Tata Dividend Yield Fund, considering its improving performance over the past three years. The fund seeks to invest in stocks that have a dividend yield higher than the Sensex. The fund has also managed to contain downside relatively well in the recent market fall. It has retained its position within the top quartile despite the decline in the markets over the past two months.

In the dividend yield funds category, this is the second one to have an over three-year track record, the other being Birla Dividend Yield Plus. After lagging behind the benchmark in the first couple of years, in the last one year, the fund has managed to be the best performing fund in this category.

In the process it has managed to better the returns of peers such as UTI Dividend Yield and Birla Dividend Yield and its benchmark Sensex.

Suitability: Though dividend yield stocks are usually sought after for downside protection during a market downturn, such stocks, in the Indian context, haven’t been immune to market declines. This fund is suitable for investors who are willing to bet on the strength and extent of the dividend declaring ability of the companies in the portfolio. This means that the holding horizon must be longer. The portfolio comprises sectors that usually declare high dividends, such as oil marketing, pharma, FMCG and banks. The fund also straddles evenly across the market capitalisation. Small and mid-cap stocks account for over 60 per cent of the total holdings. This may expose the fund to volatility in these segments. Volatility was pronounced in the last couple of months when small and mid-cap stocks were beaten down heavily. But despite this decline in NAV, the fund maintains its position among the top quartile of diversified equity funds.

Performance and strategy: In calendar year 2007, as well as on a trailing twelve-month basis, the fund has delivered returns that have bettered not only its benchmark, Sensex, but also broader indices such as the BSE 100 and BSE 500. On a three-year basis, the fund is second-best among its peers. Over the last year, it has delivered a healthy 44 per cent return.

The fund’s choice of stocks reveals that dividend yield could be higher than Sensex yield of 1.02 per cent. This might be a softer benchmark. But many stocks in the portfolio clock dividend yields that are over 2.5 per cent.

The fund does not take concentrated exposure to any of the stocks and restricts them to little over 5 per cent in a stock. Amongst funds tracking dividend yield, Tata Dividend has maximum exposure to small and mid-cap stocks with over 60 per cent of the assets invested there.

With 39 stocks in its portfolio, the fund appears compact. The exposures in consumer non-durable segment have been nearly doubled in the last one year to include publications, FMCG and pharmaceuticals. Banks and computer hardware exposures have also been increased, while exposures have been pared in oil, gas and power sectors.

Fund Details: The fund has a corpus of Rs 138.1 crore as of January 31, 2008. The current NAV per unit for the growth option is Rs 22.78. Mr S.Sankaranarayanan manages the fund.

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