With the recent stock market crash having wiped out all expectations of making a quick buck in the market, investors will have to scour the market for other money-making opportunities. One time-tested method is investing in high-dividend yield companies.
What is dividend yield and what are the benefits of investing in such companies?
Dividend yield is calculated as the annual dividend per share divided by the current market price of that share. The dividend yield of a company changes everyday as it is linked with the constantly changing market price on the exchange. When the share price falls, the dividend yield increases and vice-versa.
This is a common phenomenon and a relatively safe one as investors are assured of at least a minimum return of 4 percent. In the short term, while investors benefit from tax-free dividends, in the long run, they benefit from capital appreciation.
In addition, such stocks are in a better position to withstand market crashes because if the share price falls below a certain level, the dividend yield improves, prompting investors to jump in and buy the stock.
Firstpost has compiled a list of 28 dividend-paying companies from the BSE 500 with a sound financial track record. Some companies like Patni Computers and HCL Infosystems have been removed from the list because they paid one-time special dividends only and are not regular dividend-paying stocks.
For your benefit, we have also calculated the five-year average dividend yield of the 28 companies to give you a better understanding of their dividend-paying history.
On the top of our list (see table below) is Polyplex Corporation, whose dividend yield stands at 7.08 percent. The world’s fourth-largest manufacturer of thin polyester film reported a 60 percent growth in net sales and profits for the June-ending quarter.
However, its average five-year yield was lower at 4.87 percent. Second on the list is JBF Industries, which has a dividend yield of 6.66 percent. Its five-year average yield is around 5.87 percent. The company is engaged in the polyester business and reported a 21 percent fall in net profit for the June quarter.
Some other companies worth mentioning are Graphite India, SRF India and Clariant Chemicals (India): their five year average dividend yields were much higher than their current yields.