Free-Fall How to hang on when markets don’t

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the charts. Set a price target, and offload the stock when your stocks reach the target levels.

Dividend yield

In this financial markets, a company which declares continuous dividend to its shareholders signals good track record and strong business fundamentals. This also shows the confidence of the management and increases the predictability and stability of the business. There are various companies delivering very good dividends every year.

These companies mainly cater to pharmaceuticals, auto ancillary, banks and the FMCG sectors. Though, these companies have slowed down over the years due to maturity in the markets, they are stronger in terms of generating cash flows and disbursing more dividend. Investors can go for companies with net yields in the range of 5% - 9%.

However, from the market point of view, they are less volatile and have lower beta. “With moderation in growth and high volatility in the markets, it will be good for investors to allocate around 10%-15% for dividend yield stocks,” advises Mahesh Patil, fund manager, Birla Sunlife Mutual Fund.

The recent crash has seen a decline in a large number of scrips including those of high-dividend yield companies. Most of these companies command a price-earning (P/E) multiple of less than 10. Now, the prices have declined much more than the previous year which would ultimately increase the net dividend yield receivable. In addition to this, is the closing of books at end of the financial year on March 2008, when the companies declare final dividend which is tax-free in the hands of investors. Investors can expect a dividend within four to six months depending on the companies’ book closure and annual general meetings.

The flip side is that companies falling into this category do not provide good capital appreciation as compared to momentum or high-growth scrips. Investment in high dividend yield stocks should be for more than five years.

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