With stock indices near record highs, risk-averse investors can opt for high dividend yield stocks

Market Outlook

The benchmark indices hit a record high in June and since then both the Nifty 50 and the Sensex have been consolidating in a narrow range.

The Nifty 50 is just a little over 1 percent away from hitting a fresh high above 15,915 and investors who are risk-averse can look at taking out some money and parking it in high dividend yield stocks.

Let’s understand what dividend is. Dividend is the earnings of a public listed company that is distributed to a class of shareholders. Dividend yield is the dividend-to-price ratio. It is the percentage calculated by dividing dividend per share by the price per share.

The dividend yield is used to calculate the earnings on investment (shares) considering only the returns in the form of total dividends declared by the company during the year. For more click here

“While the stock market continues to trade in uncharted territory, investors can think of adopting defensive strategies based on their risk appetite by investing in high-dividend yield stocks. Dividend is an important source of return for shareholders,” said Palka Chopra, senior vice president at Master Capital Services. “Buying dividend stocks can be a great approach for investors who are looking forward to generate income and those who are simply aiming to build wealth by reinvesting dividend payments.”

High dividend-paying stocks benefit investors by providing a regular income. Chopra said most dividend-paying stocks are from defensive sectors, which are least impacted by economic downturns.

Axis Securities has listed out stocks with the highest dividend yield, including DB Corp, Banco Products, NLC India, Indiabulls Housing Finance, HPCL and Oil India.

Dividend Plays

(Note: The list is for reference and not buy or sell ideas)

Considering that the markets are trading near record highs, some marginal profit booking is likely. Investors can book some profit at current levels and deploy some amount in dividend yield stocks that suit their risk profile.

“Dividend yield investing is basically looking for mature companies which generate more cash and are not able to deploy further in their businesses. This type of investing is best suited for people who are looking for better returns than debt but want to iron out the risks related to equity investing,” said Vinit Bolinjkar, head of research at Ventura Securities Ltd. “In case one is looking strictly for dividend yield, one can look at HPCL, which can also benefit from retailing due to high crude prices. Coal India is also one stock which one can look into given its still near-monopoly.”

Bolinjkar also likes ITC, which has a good dividend yield, and in case the stock re-rates, it will be the cherry on the cake.

Who should invest in a high dividend yield stock?

Such stocks are for investors who are either risk-averse or need a steady flow of income that is higher than what a fixed deposit yields.

“High dividend-paying stocks benefit investors by providing regular income and creating a safety mindset that they’ve invested in a good company which believes in sharing its growth with its shareholders,” said Chopra of Master Capital Services. “Conservative investors who are looking for less volatile equity funds can also choose to include dividend funds in their investment portfolio to reduce the risk factor over the long term.”

She added that dividend earned from such stocks during an economic downturn would allow investors to compensate for losses from other riskier investment options.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.