We are talking here of the high dividend yields which are currently available on some stocks. With most of the stock prices being quoted at their 52-week low, dividend yields have suddenly become quite important.

One way of comparing the attractiveness of the dividend yields is to compare them with yield on debt instruments. A one-year fixed deposit with a bank, for example yields around 10 per cent currently. For five-year paper floated by financial institutions, the yield is about 14 per cent. But it would be a mistake to compare five-year yields with dividend yields. Taking a one-year period for corporates, the maximum for fixed deposit is 15 per cent.

Adjusting for tax at 30 per cent, the yield works out to 10.5 per cent. Any company giving a dividend yield above this level will be very attractive.

To test this hypothesis, we took a sample ofprofit-making companies in the A-Group and calculated the dividend yields in case the companies maintain the dividend.

This is quite a safe assumption for several companies, as our sample shows that except for Zuari Agro, Arvind Mills and Hotel Leela Venture, none of the profitable companies reduced their dividend per share in 1997-98. Arvind Mills and Zurai Agro saw the most drastic cut in dividend per share. The dividend in Arvind Mills was reduced from Rs 4.5 per share in 1996-97 to Rs 2.5 in 1997-98 while Zuari Agro cut its dividend from Rs 6 to Rs 4 per share in the same period. Further, in spite of the general recessionary mood, the bulk of the companies increased the dividend from their 1996-97 levels.

Bank of Baroda, GE Shipping, GSFC, HDFC, ICICI, IDB, LIC housing, Oriental Bank are expected to maintain dividends.

While the companies mentioned above increased their dividends in 1997-98, the other companies in our sample of A group companies maintained the dividend per share. They include H M,SPIC, Nagarjuna Fertilisers and GNFC.

As the table shows investors can earn upto 21 per cent return on investments in firms like GE Shipping, who have been increasing their dividends per share upto 40 per cent. Even if GE Shipping reduces its dividend next year by 10 per cent the yield on the investment works to more than 18.8 per cent.

The whole issue can be looked from another angle also. We can segregate the group of companies into four main groups. Banking & institutions, fertilisers, manufacturing and hotels. On a conservative estimate banks, which are growing steadily, would increase dividend per share, manufacturing and hotel services companies can decrease dividend per share, while urea companies would maintain it. Under such a scenario it should not be difficult to pick out stocks with a high probability to give out expected higher yields.

The only problem could be that prices can fall further. The capital loss might offset the gains in the dividend yields. Analysts point out that at thepresent prices there is very little downside risk. In any case, investors buying at such low prices can always wait for the market to improve before selling off their investments. If the dividend is maintained, the yield will continue to be high.