high devidend yield stocks

Hunting For winners 

Companies disbursing high dividends are good for investors looking for higher returns than bank deposits. Here's why.

The 30 per cent fall in the stock market is giving to investors looking for safe returns a tough time. A small return of over 5-6 per cent post tax has become a difficult task now.    HIGH DIVIDEND-YIELD STOCKS Company Dividend Yield Dividend in % 04-May 05-Jun 06-Jul Varun Shipping 6.72 30 45 45 Kanoria Chem 6.04 30 30 30 Ador Fontech 5.21 35 40 50 JBM Auto 5.1 15 20 20 Jetking Infotrain 5.09 80 50 140 ICI (India) 4.71 55 60 270 Hawkins Cookers 4.55 30 50 70 Tata Metaliks 4.46 60 60 60 Gabriel India 4.24 70 70 70 National Peroxide 4.2 70 60 70

However, a different approach to the stock market can increase returns on a stock. This brings us to high dividend-yield stocks. Such stocks give high dividends and the capital value increases when the markets turn around.

Historically, such stocks are the best performers in a stable market. And, when these stocks are battered during market fall, the value of dividend only increases due to their lower market price.

To pick such stocks, you need to look at the dividend-yields of companies. Calculating dividend-yield is simple. Just divide dividend per share by the current market price and multiply it by 100. So, if the market price of a stock is Rs 100 and the dividend paid is Rs 10, the dividend yield will be 10 per cent (10/100 X 100).

There are 310 companies whose stocks are currently available at dividend-yield higher than the interest of 3.5 per cent that an investor receives in a bank痴 savings account. About 93 of them currently trade at dividend-yield of over six per cent, as per the dividend payout in the financial year 2006-07.

If these companies manage to maintain the net profit of 2006-07 in the current financial year (2007-08), they are very likely to pay similar dividends in the coming year as well.

Dividend-yielding stocks are recommended in volatile markets as they are more stable than growth stocks. These stocks do not fall steeply in a falling market. An investor can even beat the index returns, if he invests in good dividend-yielding stocks and rebalances his portfolio little from time to time.

According to a Business Standard Research Bureau study, the nine-month profit growth (average profit is up by over five per cent in the first nine months of the financial year), these 310 firms should maintain their dividend payout when they close their annual account for the year 2007-08.

As far as returns go, 93 stocks, whose dividend-yields were more than 6 per cent last year, gave an average return of over 25 per cent. These companies have an uninterrupted dividend record for three years. Also, the market price of twenty-seven firms has more than doubled in the last one year.

For instance, the Rs 600 crore TT Industries has an unbroken dividend payout record of four years. During the last three years, the company has stepped up its equity dividend, from 8 per cent in 2004-05 to 10 per cent in 2005-06 and 20 per cent in 2006-07.

The company痴 net profit has doubled from Rs 2.51 crore in 2005-06 to Rs 5.45 crore in 2006-07. During the first nine months of 2007-08 its profits aggregated were at Rs 3.85 crore.

Considering the historical dividend payout of Rs 2 per share, the yield comes to 11.17 per cent at the stock price of Rs 17.90. The stock had touched its 52-week high of Rs 38.90 on January 2, 2008.

A word of caution though: before you run to research such stocks and add them to your portfolio, you need to stay away from companies who have paid high dividends due to high extra ordinary income. Investor can neglect penny stocks giving out high dividends And, do not invest in companies whose profits are falling despite higher dividend payout.

Source: Business Standard