InvestorQ : What is your view on buying high dividend yield stocks? Can that be a good idea given that bond yields are falling sharply?
Rutuja Nigam made post

What is your view on buying high dividend yield stocks? Can that be a good idea given that bond yields are falling sharply?

Arti Chavan answered.
3 years ago

As the yields on government securities have fallen to multi-year lows after Operation Twist, a lot of investors are asking if high dividend stocks could come back into fashion. Here is what you need to know.

· The 10-year G-Sec yield fell sharply to 6.5% from more than 8% at the end of 2018. This may prompt investors to look around for stocks offering higher dividend yields. Since a majority of companies tend to distribute dividends at the end of the fiscal year around March, investors will be in a position to earn the payout in a few months from now.

· Some of the stocks giving high dividend yields include names like Vedanta, Hindustan Zinc, SJVN, Nalco, REC, NHPC, Indian Oil Corporation, Oil India and Coal India. In most cases, the dividend yield is in excess of 7%. Here is a list of good dividend yield ideas.


The PSU hydropower company trades at 8.3% FY19 dividend yield and it is expected to sustain in the long run. For example, on a market capitalisation of Rs.10,217 crore, the company has cash and investments of Rs.3,300 crore and net profit of Rs.1,680 crore. If the government gives hints on divestment, then dividend yield may be a concern but divestment value will be higher.


Vedanta trades at 12.6% FY19 dividend yield and at 8.4% FY20 estimated yield. It has been paying high dividends for the past three years as the debt at the promoter group company is high and Vedanta remains its main source of income. However, lower commodity prices in the first half could be a big risk, although the company has consistently maintained the yield.


The oil producer trades at 7.6% FY20 estimated dividend yield. In addition, the crude prices factored into valuations are still below $50/bbl even as prices are inching towards $65/bbl in the Brent market. In addition, the oil prices are also expected to rise amidst tensions in the Middle East following the standoff between the US and Iran.


Coal India trades at FY20 estimated 7% dividend yield. The company has cash and equivalents of Rs.33,500 crore, which is 27% of market capitalisation. Weak production trend in the first eight months of FY19 is an overhang on the stock price.

These are some of the dividend yield stories you can consider.