Investing in high-dividend yield stocks could be a good strategy: Expert

Here are the stocks in focus this dividend season

Corporate India has started announcing results and final dividend for the financial year ended 2018-19. During this period, the focus usually shifts to high-dividend yielding stocks. There are about three dozen stocks in the top-500 universe that offer dividend yields of over 3 per cent as compared to the Nifty’s dividend yield of 1.3 per cent.

Among the top 15 stocks in terms of dividend yield, only three are from the private sector. State-owned companies National Aluminum Company (Nalco), SJVN and Indian Oil have dividend yields of more than seven per cent – a threshold considered superior as it rivals fixed-income returns.

At the top of the list is Vedanta with a dividend yield of 11.7 per cent — the mining company has paid hefty dividends in FY18 as well as two interim dividends in FY19.  Dividend yield is dividend per share divided by the current share price of a company.

Investing in high-dividend yield stocks could be a good strategy, particularly during a range-bound or a bear market. However, investors need to be mindful of a few things.

“Just because a company has paid high dividends in the past doesn’t mean it will continue to do so in future. Investors should keenly watch the earnings growth trajectory. A company can sustain high dividends only if growth rates are high,” says an analyst.