As a government employee, Avinash Deshmukh used to invest in shares of public sector companies for their consistency in paying dividends. But now he has switched over to the so-called “buzzing” stocks, hoping to make a quick buck.
"I used to receive good dividends from these companies. But their share prices do not move much. Now, the market is moving very fast and I think it is time to join the rally," he says.
The average annual stock market returns in India have been above 40 per cent in the last three years, making dividend pale in comparison. The dividend yield measures the return on investment in a share at its current price. It is calculated by dividing the dividend received per share by the market price of the share.
"The trend has been changing and nowadays investors want more growth stories than high dividend yields. That happens when the market is going one way – up," says Shankar Sharma, director of First Global Stock Broking.
"High dividend yielding shares were once called investment havens for widows. But now, most investors are focussing on price movements rather than profitability and dividend yields," says Madhukar Sheth, a broker in the Bombay Stock Exchange.
Despite companies making higher profits year on year, dividend yields have declined as stock prices rose manifold in the same period. For instance, ONGC, where the dividend yield has dropped 2.68 per cent fall from 2002, has grown nearly three times in terms of share price--from Rs 328 per share on April 1, 2002, to Rs 854.70 on Thursday.
Analysis of the data available shows that of 326 companies studied, 250 have reported a fall in dividend yields since 2002. Some of the well-known names include Marico (down from 210 per cent to 1.10 per cent), LIC Housing Finance (down from 7 per cent to 3.5 per cent) and ONGC (down from 7.68 per cent to 5 per cent).
However, market experts say it is time to look at dividend yields again. Some of the stocks that lead the pack in dividend yields include Sun TV (65 per cent), Monsanto India (9.15 per cent) and Varun Shipping (8 per cent).
Ideally, one should increase the percentage of high dividend yielding stocks in the portfolio to pay off during a sluggish phase. As fund managers predict lower returns of 15-20 per cent from equities this year, it makes sense to bank on sturdy stocks that give consistent returns.