Dividend paying stocks are a good bet amid market volatility

Deepening supply chain disruptions due to the Russia Ukraine war, surging inflation and potential aggressive interest rate hikes later this year by the US might extend the stock market volatility over the next few months. The stock market is expected to remain under pressure in the new term on the back of rising concerns over the impending energy crisis. Amid this scenario, betting on dividend yield stocks could be one of the best strategies at this point of uncertainty to generate a steady income stream. Dividend yield expressed as a percentage is the financial ratio (dividend / price) that reflects how much dividend a company pays out every year relative to its stock price. Generally, the high dividend paying stocks have low beta / volatility, high free cash flows and low capital expenditure plans resulting in them distributing higher dividend payouts to their equity shareholders. Investors’ interest in large cap dividend stocks is evident when you look at the preference allocated by them towards index related mutual funds, ETFs and individual large cap companies. Dividend paying big brand stocks are well positioned to weather the market volatility because of their wide market reach and financial flexibility. So, we think it would be wise and prudent to purchase these stocks because of their past history of high dividends and low beta. Some of the good dividend paying stocks on the basis of high yield are REC Ltd quoting at Rs 127 (yield 10.2%), Indian Oil Corporation quoting at Rs 122 (yield 9.83%), Power Finance Corporation Ltd quoting at Rs 117 (yield 9.25%) and Coal India quoting at Rs 186 (yield 8.60%). Incidentally, all the above names are companies in the PSU basket but it makes sense to accumulate these stocks as the government will be paying hefty dividend to themselves over the next financial year and this would ultimately benefit the other equity shareholders. There are other blue chip companies in the private sector space like ITC, Britannia, etc which also distribute handsome dividends. With most of these high dividend yielding companies doing well on the financial front also, there could be reasonable capital appreciation also. But investors should do their due diligence before investing in stocks and consult their financial advisor before investing. The Indian equity barometers ended the week with strong gains on the back of frantic short covering by traders. For the week ending Friday, 1 April 2022 the S & P BSE Index rose 708 points or up 1.21% to close at 59276 levels while the Nifty 50 Index gained 205 points or up 1.18% to settle at 17670 levels.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.