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Bet Cautiously On High-Dividend Yielding Stocks

Uploaded Date 24-Aug-20
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High Dividend Stocks That Needs to Be Dealt with Carefully


The deadly COVID-19 spooked not only the global stock market but also the Indian stock market badly. The Coronavirus not only created fear not only in the minds of the common people but even brought back the fears of a global recession. The reason is pretty obvious. The Asian as well as the European market faced heavy losses due to the global economic fallout. Market experts working with Shyam Advisory saw that the Sensex took a dip during the months of mid-February to March and it was in complete sync with the global markets of Europe, the US, and other economies.


Due to this chaotic situation, many investors (new as well as seasoned) players started to rush towards make their debts safe. The Indian bond-yields of 10 years dropped from 6.6% to 6.4% during March. Now, it seems that the rate might drop below 6%. Market experts feel that whatever might be the case, hasty actions of selling bonds or stocks should be stopped by new investors. Rather, they should take investment steps after careful consideration.


Investment Should Be Done Carefully


Since the Covid-19 pandemic kicked in, the stock market remained very volatile. The market scenario hasn’t changed a bit. If one day the market remains bearish, one the other day it becomes bullish. Since the market is in turmoil, many investors, especially new investors on the block become apprehensive.


For investors, who don’t know the right way to invest in this volatile market, stock options tips from professionals could be of great help. With the right investment channels, they would be able to earn some money from the stocks. According to market professionals, in this present scenario, a good investment choice would be the stocks that would give a high dividend yield. Often, it has been seen that stocks with high-yield are a safer bet.


In fact, many investors after listening to the suggestion of stock market professionals invested in high-yield dividend stocks, when the Sensex and Nifty dropped by 23% in March. The reason to invest in such stocks by investors is for one reason. Well, the high-dividend yield stocks come with strong backing. Hence, returns are usually guaranteed even during a downturn.


To help investors get a clear picture of high-dividend yield stocks, one should go through the rest of the post.


High-Dividend Yield Stocks


Do you have any idea about high-dividend yield stocks? No. You don’t need to worry, as stock market professionals and advisors will guide you on this matter.


High-yield stocks are the ones that gets better dividend yield than that of a particular benchmark average. There is no set standard for checking whether a dividend yield is low or high. Therefore, determining stock yield depends on the set standard/criteria of an individual analyst.

Amidst the pandemic, investors are banking on high-dividend stocks as they would be getting high dividends. In this current economic situation, interest rates on FD offered by banks are not more than 4-5%; however, when it comes to stocks, it can easily beat the returns offered by the FD as they offer a high dividend. That being said, an important stock tips from the market analyst is that the public sector enterprises used to offer a high amount of dividends. But at this present moment, the dividend yield would greatly vary. It would depend on the market condition and the interest rate.


Despite the high returns offered by these dividend-yielding stocks, the investment strategy isn’t risk-free. One needs to be very cautious at each level with these stocks. For instance, new investors should see big dividend yields as a warning sign. The reason is obvious. The price of the share being low, indicating that investors are less interested in the growth prospect of the company or even if the company is facing any kind of trouble or not.


Often, companies that are not able to maintain their earnings and their growth is slowing down, will try to get rid of the stocks, even if the price of the share is high. Hence, investors, especially new investors should ensure that the company is not going through any trouble before investing in them. Sometime, companies might be forced to cut down their dividend and investors would get very low returns than their expectations. Hence, it’s vital to follow the high-dividend yielding stocks in news and invest accordingly.


Pointers On High Yield Stocks


Along with the stock options tips, an investor should also explore the options available for high-yield stocks. For instance, in this present scenario, it would be a good idea for the investors to select stocks of public sector undertakings, i.e. PSU companies. Having a high market share, they would offer a good dividend. On the other hand, investors would have a stable income owing to the favorable business model.


Investors also have the option to invest in the high-dividend stocks of the private sector. However, when going for the private sector, it’s important to go for those companies that hold a dominant share in the market. Investors should take the help of market experts to understand the dividend payout ratio offered by the company. They should also look into the stock history of the company. Here, it’s important to ascertain if the company holds a strong track record of steady and rising dividend payouts. In the event, the company holds a record of the irregular history of dividend payment; an investor should seriously avoid that company. At the same time, the company’s present and future cash requirements should be taken into consideration.


Why They Are The Best Option?


Wondering why stocks with high dividend yield are considered to be the best bet. Well, they are the best place to invest one’s hard-earned money even when the market is taking a downward slide. Unlike other stocks, they are not very volatile. Most importantly, investors can hold on to the high-income stocks via the bear market. One suggestion and stock tips that market analysts offer are that when the stock is on the upwards side, the yield would drop and vice-versa. So when the value of a share starts to drop, the dividend yield would just get double only under one condition. The company needs to keep its dividend payment very steady.


From the wide pool of high-dividend stocks, one should only bet on those stocks that are highly recommended by market analysts. Some of the top-scoring players are ITC, HUDCO, SKF India, and more.


However, investors should consider stocks with high-yield dividend cautiously, as some might not be a good bet for investment. Stocks of public sector companies that fulfill the order of the government are ideal. As per the instruction, companies irrespective of their profit should offer dividend yield amounting to 5% of their net worth. However, investors should never think that the dividend yield offered by the company and their growth outlook would go closely.


Experts working with Shyam Advisory would like to point out that investors who might be willing to invest in the stocks of Coal India should tread cautiously. Well, Coal India stocks offer a perfect dividend yield; however, they shouldn’t overlook the valuation of Coal India. Due to uncertainties, stocks might slide down. Hence, careful research is important before investing in high-yield dividend stocks.


Investment Strategy


In a bullish market, it has been seen that investors give more preference to capital appreciation through high share prices. However, when the market is in turmoil, high-dividend yielding stocks get more value. The reason to pick dividend-yielding stocks is pretty simple. Even if the share price remains low, the investors are bound to get some return. In this current situation, where uncertainties are very high, investors should know which high dividend-yielding stocks to buy or consider for investment.


Seasoned investors might not need any expert guidance on this matter. But things are a bit different for the newcomers. They need to implement the right investment strategy so that they can pick some good high-dividend yielding stocks. Well, the outlook of the stock market is not very good and it can change at any point of time.


Market analysts are pinning their hopes on stocks with high-dividends. The dividends offer a sort of defensive character to the stocks.


In this regard, financial advisors working with Shyam Advisory pointed out that during April, stocks of companies, like Sonata Software, Ircon International, REC, NLC India, Bajaj Consumer, and more started to trade with an attractive yield of 10%- 15%. They also pointed out that when investors are not sure about when the market correction will happen or for how long it would remain a good dividend providing stock is the safe bet. After all, it would provide a steady income.


Stocks to Watch Out For


Based on the reports submitted by the market experts on stocks to watch, investing in the stocks of Sonata Software, Gujarat Pipavav Port Ltd., Bharti Infratel Ltd., Trident Ltd., NLC India, DB Corp, Bajaj Auto Ltd, etc makes some sense. In companies like Oil India, Coal India, PTC, Ircon, etc. the government is the majority owner. Hence, the government ensures that the companies pay enough dividends to balance the fiscal deficit. Hence, investing in them would be a good idea.


After all, high-dividend stocks are the lifeboats of the bear market.

In this present scenario, stocks of REC and Oil India are worth considering. They come with strong principles and can act as a great cushion to investors in falling markets. It has been seen that companies that provide high-dividend stocks come with a good cash reserve. For this reason, paying dividends is not that difficult for them even in tough times.


Some companies which are offering consistent dividend are ITC, IOC, GIC RE, Castrol India, Petronet LNG, and Coal India. Investors should be very selective in picking stocks. They should go for those companies that show signs of reported earnings despite the troubled economy.


Market experts like Shyam Advisory feel that one should look out for high-yielding stocks to buy carefully. A wrong bet would turn to be fatal. Investment in stocks with high dividend yields is the best way to protect the investment in the event of low capital appreciation. However, during economic decline, only a few of the stocks would do well.


In this volatile market, most of the high-dividend yielding stocks are trading a 52-week low, but the dividend yield offered by the stocks has drastically soared. Experts suggest that one should not look into the past to decide on which high-dividend yielding stocks to buy. Taking the past won’t be a good benchmark; rather, the present scenario should be considered.


Bottom Line


Investors, who are looking to expand their investment portfolio, should shoulder stocks with high dividend yield. They are far better than the FD offered by the banks and the falling bond yields. An important stock tips that shouldn’t be overlooked is that investors should invest in these stocks before the ex-dividend rate. Doing so would help the investor to get dividends properly.