Day: November 20, 2019

High Dividend Yield Stocks

4 High Dividend Yield Stocks

How Much High Dividend Yield of Stocks Matters in Stock Selection?

Introduction

This article contains details about 4 high dividend yield stocks with positive returns over last 12 Months. Many a times retail investors select high dividend yield stocks without analyzing other important parameters like historical returns, revenue growth, profit growth and also the future earnings visibility of the business. Thus, investors should focus on quality of stocks rather than blindly following dividend yields.

Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya

4 High Dividend Yield Stocks

What is Dividend Yield?

  • Companies distribute a portion of their profits as dividends, while keeping retained earnings aside to reinvest in the business. Dividends are paid out to the shareholders of a company.
  • Dividend yield is the financial ratio that measures ratio the annual cash dividends paid out to shareholders relative to the current share price of the company. It measures the quantum of earnings in the form of total dividends that investors make by investing in that company.
  • The formula for computing the dividend yield is :
    • Dividend Yield = (Cash Dividend per share / Share Price) * 100
  • Example : Suppose a company with a share price of Rs.100 declares a dividend of Rs.10 per share. In that case, the dividend yield of the stock will be (10/100)*100 = 10%. 
  • Many a times we come across dividend declared of 100%, 300%, even 1000% etc. However, this dividend is calculated on the face value of the company which the company declares during its Initial Public Offer (IPO).
  • In short, dividend yield measures the amount of cash flow you’re getting back for each rupee you invest in an equity of the company.

High Dividend Yield Stocks with Negative 1-year Return

 High Dividend Yield Stocks with Negative 1-year Return
Top 4 High Dividend Yield Stocks with Negative 1-year Return
  • From the above table, we can see the top 4 high dividend yield stocks with negative returns over last 1 year.
  • In these stocks, a shareholder seems to get higher comparatively higher dividends. However, these stocks share prices are continuously falling over last 12 months.
  • There was a great deterioration in the market capitalization of these stocks. So, we can say shareholders are getting the higher dividends with much greater capital erosion.
  • After referring such negative returns over last 12 months, how much high dividend yield of stocks matters in stock selection?

Thus, we should go for stocks paying higher dividends and also giving positive returns over last 12 months. Lets see which are these stocks.

High Dividend Yield Stocks with Positive 1-year Return

Procter & Gamble Health Ltd
  • The company is engaged in manufacturing and marketing of pharmaceuticals, bulk drugs, fine chemicals and pigments.
  • Market Capitalization = Rs.7,183 Cr, Small Cap Company.
  • P&G Health basically has a consumption driven business. So the company is having a good earnings visibility in the future also.
Esab India
  • The company is engaged in the business of fabrication technology. Esab India is a world leader in the production of welding and cutting equipment and consumables. 
  • Market Capitalization = Rs.1,917 Cr, Small Cap Company.
  • In spite of being related to the manufacturing industry, the company has given almost 38% return over last 1 year.
  • In terms of performance, 3-years sales growth is 14%, while 3-years profit growth is 24%.
  • Current Price to earnings ratio is 30. Debt to Equity ratio is 0, debt-free company. Promoter holding is also high 73% which is also a positive sign.
Hindustan Petroleum Corporation Ltd (HPCL)
  • The company is engaged, primarily in the business of refining of crude oil and marketing of petroleum products.
  • Market Capitalization = Rs.44,221 Cr, Large Cap Company.
  • HPCL is getting the advantage of divestment program. The positive cascading effect of government’s divestment target is going to support major oil marketing companies in India – HPCL, BPCL and IOC .
  • PE ratio is 8.25, in spite of great return on equity (24%) and return on capital employed (21%). So we can say that the stock is currently trading at discounted valuation.
Rural Electrification Corporation Limited (REC)
  • REC is engaged in financial services and activities-other Credit granting. The Company provides finance to power sector. It finances and promotes rural electrification projects all over the country.
  • It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects as are sponsored by them
  • Market Capitalization = Rs.28,231 Cr, Large Cap Company.
  • The company is capable of generating consistent cash flow on account of government support. It is one of the PSU stocks in which a good positivity is seen in recent months.

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