Market outlook uncertain, stocks with high dividend yields seen as best bet
Stocks such as
, , , , Corp, Power Finance Corp, and are currently trading at dividend yields ranging between 10% and 20%.
“Our analysis indicates that high dividend yield companies, especially in oil & gas, power and energy sectors have outperformed the benchmark Nifty handsomely by 24% with the average stock price appreciation of 4.8% plus a high dividend yield of 12.9% so far this year compared to 11.3% fall in the Nifty index,” said Gaurav Dua, head- capital market strategy, Sharekhan. “We advise investors to buy , Oil India, , , Power Grid, and Coal India as these stocks are a play on both growth and high dividend yield.”
The dividend yield is the ratio of a company’s annual dividend compared to its share price. For example, if the annual dividend is ₹10 per share and the stock trades at ₹100, the dividend yield works out to 10%. This ratio rises when stock prices fall or vice versa. Analysts said the average dividend yield of India’s top 100 companies could be around 1.5%.
The Nifty, Nifty Midcap 100, and Nifty Smallcap 100 indices have dropped 17%, 22%, and 32%, respectively, from their 52-week highs, while yields on 10-year GSecs are hovering around 7.5%.
With the market outlook remaining uncertain in the near term, analysts are advising companies with strong cash flows and a healthy dividend-paying track record.
Jitendra Upadhyay, an analyst at Bonanza Wealth Management said high dividend yield stocks are seen as a protective strategy in a volatile market like the current one.
PSUs such as Coal India, Oil India, , , , NLC, Ircon, and PTC are among the companies that pay the highest dividends. This trend may continue as the government could seek higher dividends as meeting divestment targets is expected to be a challenge this year.
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