High dividend stocks for risk-averse investors

Dec 03 2012, 10:57 IST
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SummaryForget the bulls and the bears, dog stocks are investor’s best bet when it comes to sailing smooth.

Analysts believe that this can be a good choice for risk-averse investors but must be used on a case-to-case basis. “Companies with strong cash-flows and well-entrenched business models are usually those that have a good dividend track record and strong cash balances. Besides, companies that have managed their cash flows well even in a market slowdown might be the ones to watch out for. Investors can start by looking at dividend-yield stocks that provide an excellent alternative to debt instruments,” said Mayuresh Joshi, vice-president (institution) at Angel Broking.

While warning that investors needs to be careful while selecting high dividend yield stocks as many small companies use this as a lure, Joshi said investors can go in for buying a stock with a dividend yield of six per cent that is better than a yield of eight per cent on taxable fixed deposits, where your taxes reduce the post-tax yield. “But an investor should not forget the risk attached with dividend, as the same can even decline in future years,” he said.

Traditionally, industries like pharma, FMCG, PSU banks, fertilisers maintain a high and consistent dividend payouts. On the other hand, capex-driven companies in infrastructure, construction and real estate are generally inconsistent in their dividend payments, due to their inconsistent business cycle. Blue chip companies such as ONGC, Tata Steel, Hero Moto Corp, Indian Overseas Bank are some of the highest dividend yielding scrips on the BSE and the NSE. Kishor P Ostwal, CMD, CNI Research believes that investors can select such stocks on a case-to-case basis after looking at all aspects of the company. “The exact US model can not be juxtaposed in the Indian scenario,” he said.

Another good option is the newly launched NSE CNX Dividend Opportunity Index that comprises 50 companies that rank within the top 300 by average free-float market capitalisation and aggregate turnover for the last six months. These firms chosen from 24 sectors, including ACC Ltd, Hero Moto Corp and NTPC Ltd, are also amongst the top 50 ranked by annual dividend yield. The index has given an absolute return of 17.3 per cent and 48.4 per cent for one year and three years, respectively.

Apart from having a direct exposure to equity, investors can also choose to go in for mutual funds that invest in a basket of dog stocks. Typically known as Dividend Yield Funds, there are seven mutual funds that

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