Dividend yielding schemes, usually considered a safe bet during volatile times, have underperformed the newly launched CNX Dividend Opportunities Index on a time horizon of one and three year period. While CNX Dividend Opportunities index gave an absolute return of 17.3% and 48.4% for one year and three years, respectively, dividend yielding schemes gave a return in the range of 8-17% for one year and 6-23% for the three-year time period.
Consistently high dividend paying companies provide a steady stream of cash flows for its investors.
In that sense, owning an equity share is akin to holding a bond with dividends flowing akin to coupon payments. Any appreciation in stock price is an added advantage for shareholders. Rajat Jain, CIO at Principal PNB MF says, ?We stand by our investment philosophy of investing in dividend yielding stocks. For us last year was very good compared to markets which were volatile.?
Dhirendra Kumar, CEO of Value research online says, ?Basically dividend yield fund investing is based on the philosophy of value investing and it takes a while to generate better returns. While such schemes do better during volatile markets, its performance also stays muted during a bullish phase?.
And during bearish phases, dividend yielding schemes generally tend to do well than plain vanilla equity schemes which is what happened in the last one year. In the last one year, while dividend yield equity funds have given an average return of 11.8%, it was 3.8% for multicap and 4.3% for largecap funds. Dividend yield equity schemes predominantly invest in portfolio of companies with high dividend yields as measured by annual dividend paid divided by its latest share price. On an average, stocks are shortlisted with a dividend yield of atleast 1.5 times that of Nifty or Sensex. Currently, Sensex has a dividend yield of 1.4. In that sense, the cut-off percentage would be 2.1.
Currently, there are seven dividend yielding schemes in the market with total corpus of over R4,000 crore.
While UTI Dividend Yield Scheme is the largest with around R2,994 crore of assets, Birla Sun Life Dividend Yield Plus is the top return giver with an absolute return of 17.3% for 1 year and 22.1% for 3-years highest in the category.
The recently launched CNX Dividend Opportunities Index comprises 50 companies from 24 sectors.
The stocks included in the index are a part of a primary universe of 500 companies shortlisted on the basis of average free-float market-cap and aggregate turnover. Out of this universe a list of top 50 companies ranked on the basis of their annual dividend yield constitute the index, with no company being given a weightage of more than 10%.
The index is derived by market capitalisation methodology with a base date of October 1, 2007 and a base value of 1000.