The Sensex has had a good run over the last year, recovering well from the recent recession and inflation issues as it has moved up by 17.49% in the last 12 months.
However, it is interesting to note that the top-30 dividend-yielding companies have risen by around 45% over the same period.
Companies with high dividend yield have given steadier returns and invited investor interest in recent times even as the Sensex and large-caps have stood still since Diwali.
The returns on the top-30 dividend-yielding companies since October 1, 2009, which include Indiabulls Securities and Castrol India, have also been positive, while the Sensex has slipped by 4.2% in the same period.
Investors looking for high returns on their investment have taken a more selective approach lately.
So even if the market remains volatile, going ahead, an investor can still get a decent returns, thanks to good dividend yielding stocks. The dividends are paid no matter what direction the stocks move.
“The current trend in the market is uncertain and large-caps are highly priced. Thus, investors are shifting to high-dividend yielding companies in order to book equity through their investment and not lose out on time value.” said J Moses Harding head – global markets group at IndusInd Bank.
These companies have paid an average dividend of 8.48% over the last year with Rajoo Engineers paying out as much as 19.35%.
More than twenty five of the top dividend-yielding companies have given positive returns compared with just 16 Sensex companies.
A number of the dividend yielding companies are mid-caps, which has helped their outperformance.
While the Sensex has returned 14.73% in the last twelve months, it has slipped by 726 points since October 1, 2009 to close at 16519.68 as on May 20, 2010; on account of weak global cues and inflation issues.
Mid-cap companies, on the other hand have outperformed both in recent times as well as on an annual basis. The BSE mid-cap index too has gone up by 45% over the last twelve months.
Dividend yields have benefited from a seasonal move in the mid-cap segment say, experts.
According to analysts, mid-caps are poorly covered and most of the news in such scrips is factored in at the end of the financial year when companies announce their annual results.
Another factor responsible for this shift is that the mid-cap firms usually announce their dividends towards the end of the first quarter and so investors, along with the benefits of an increase in share prices will also be able to reap the benefits of the dividend announced, said analysts. Dividend yield funds have also benefited due to the change in investor’s attitude.
The dividend yield funds of Tata, UTI, Birla Sun Life, Fortis and ING have seen an increase in returns of more than 40%, with Birla Sun Life being the frontrunner with a 60.92% upside in returns in the last one year.
According to analysts, investors in this volatile market situation have opted for companies with a low debt to equity ratio and higher dividend payout. The company’s dividend yield portfolio consists, not only of high dividend-yield companies but also of companies with a significant price upside.
This approach will help retain the investor’s interest in the company in a bullish market as he will benefit from both the dividend payout and the share price upside.
“Investors either chase value or growth. At present, the value offered by dividend yield companies is a better option due to the uncertain trend in the market.
People will seek growth once global cues improve and the risk involved in the market reduces.” said Amit Nigam, Fund Manager at Fortis Dividend Yield Fund. However, high dividend yields won’t prevent corrections in mid-cap stocks, say analysts.
“The mid cap companies, which form the high-yield basket, often overshoot fair valuations. This could result in corrections, which suggest that large-caps will better high dividend-yielding companies in the long run as they appear to be more stable,” said N Sethuram, Chief Investment Officer at Shinsei AMC.