MUMBAI: Some age-old principles of intelligent investing, like looking at PE multiples, may have taken a back seat in the current bull run. But there are those that don’t even rate a mention these days, like that of investing in high-yielding dividend stocks, which could have provided some succour in these tumultuous times.
Friday’s huge fall, however, stresses the need to revisit some of these basic principles of value investing. A walk down memory lane drives home the point. Investors following the tried and tested method of investing in high dividend-yield stocks have less to fear, particularly when the tide turns against equities.
Most stocks with good dividend yield have witnessed decent price appreciation in the recent past. This comes at a time, when the market has been subject to intense volatility due to global concerns. Dividend yield is calculated by dividing the total dividend paid per share in an year with the stock price. So, if a company pays a total of Rs 10 as dividend in one year, and its stock price is Rs 100, the dividend yield will be 10%. To many, dividend yield is a good method of picking stocks though few follow it.
Mangal Keshav Securities’ institutional equities head Jay Prakash Sinha said most good dividend-yield stocks have been out of favour as investors look for quick capital appreciation. “Good dividend-yield stocks are out of favour as their number is going down. Traditionally, a yield of over 7% is considered good,” said Mr Sinha. There are hardly any stocks with such a high yield, he added.
Typically, established companies have a higher dividend-yield. Smaller entities pump profits back into the company to fuel growth and as such their yield is low.
Interestingly, Benjamin Graham, who is generally considered as the father of value investing, included this yield as an important part of his rules. ‘The investor is best off concentrating on the real life performance of his companies and receiving dividends,’ was his view. Indeed, there is proof that this still holds true.
Indian markets to be safe haven for investors in '08: Merrill Lynch
UTI Mutual Fund’s Dividend Yield scheme is among the top four performers of the fund house. In the past one year, the fund has clocked returns of 55.17%. The Sensex gained less than 35% in the same period. In the past three months, the scheme has gained nearly 12%, while Sensex appreciated by less than 6%.
Friday’s huge fall, however, stresses the need to revisit some of these basic principles of value investing. A walk down memory lane drives home the point. Investors following the tried and tested method of investing in high dividend-yield stocks have less to fear, particularly when the tide turns against equities.
Most stocks with good dividend yield have witnessed decent price appreciation in the recent past. This comes at a time, when the market has been subject to intense volatility due to global concerns. Dividend yield is calculated by dividing the total dividend paid per share in an year with the stock price. So, if a company pays a total of Rs 10 as dividend in one year, and its stock price is Rs 100, the dividend yield will be 10%. To many, dividend yield is a good method of picking stocks though few follow it.
Mangal Keshav Securities’ institutional equities head Jay Prakash Sinha said most good dividend-yield stocks have been out of favour as investors look for quick capital appreciation. “Good dividend-yield stocks are out of favour as their number is going down. Traditionally, a yield of over 7% is considered good,” said Mr Sinha. There are hardly any stocks with such a high yield, he added.
Typically, established companies have a higher dividend-yield. Smaller entities pump profits back into the company to fuel growth and as such their yield is low.
Interestingly, Benjamin Graham, who is generally considered as the father of value investing, included this yield as an important part of his rules. ‘The investor is best off concentrating on the real life performance of his companies and receiving dividends,’ was his view. Indeed, there is proof that this still holds true.
Indian markets to be safe haven for investors in '08: Merrill Lynch
UTI Mutual Fund’s Dividend Yield scheme is among the top four performers of the fund house. In the past one year, the fund has clocked returns of 55.17%. The Sensex gained less than 35% in the same period. In the past three months, the scheme has gained nearly 12%, while Sensex appreciated by less than 6%.
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