With bank fixed deposit (FD) rates hardly moving beyond the 6 per cent mark in a highly inflationary environment, dividend stocks are gaining traction. However, a handful of stocks have not only filled investor pockets with dividends but have also given handsome returns in a ruthless market.
The list of such win-win stocks include Nifty companies like
, and .
ITC, which is the second top performer in Nifty so far in 2022, comes with a dividend yield of around 3.9 per cent and has given an impressive return of over 35 per cent year-to-date.
PSU stock Coal India, hated by those following the ESG mantra, has not only given a 34 per cent return YTD but also comes with a better-than-FD dividend of around 9 per cent.
NTPC has also delivered a return of over 20 per cent so far in 2022 and comes with a dividend yield of around 4.7 per cent.
Midcap stock
(PFC), which has eroded 10.78 per cent of its value on a YTD basis, is up 11 per cent in the last one month. The dividend yield is very attractive at around 11 per cent.
The stock of that has an FD-like dividend yield of over 5 per cent has gone up by 18.3 per cent in the last one month and nearly 10 per cent on a YTD basis.
The list includes the state-run
(3.8 per cent dividend) which is up 21 per cent YTD.
Market experts say high dividend yield companies provide a margin of safety in terms of cash flows in times when the macro-outlook has uncertainties.
“Consistency of dividend, cash flows along with strong business outlook have resulted in the outperformance of these companies. Most of them are low on debt, and high on cash flows,” smallcase manager Divam Sharma, who runs Green Portfolio, told ETMarkets.
He said there are a lot of opportunities in mid and small-cap high dividend companies where the PE is in low double digits, PB is below 2 times, while the dividend yield is average 4-5 per cent.
While some analysts say that such stocks are the best combo for conservative investors looking for consistent income and wealth creation with utmost possible safety, others warn that it can turn out to be value traps as well.
“We have seen this, especially with PSU stocks that have high dividend yields but no growth. MNC stocks are typically priced very high and are victims of sideways time correction. These kinds of investments can frustrate an investor looking for capital gains. Therefore, it is better for an investor to look for companies that provide a healthy mix of 2-3 per cent dividend yield as well as 10-15 per cent growth,” Abhay Agarwal, Founder and Fund Manager at Piper Serica, said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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