HDFC Mutual Fund has launched HDFC Dividend Yield Fund, an open-ended equity fund that will invest predominantly in stocks of dividend yielding companies. The scheme will look to invest in companies with a consistent track record of paying dividends at the time of investment and companies with a dividend yield higher than Nifty 50 index. The scheme will be market cap and sector agnostic.
Dividend yield is a good valuation indicator and companies that have high dividend yield represent good cash flow in business and management commitment towards shareholders. Also, such companies have a higher Return on Equity (ROE), said the release from the fund house. Dividend yield is a financial ratio that shows how much a company pays out in dividends/buyback each year relative to its stock price.
NIFTY Dividend Opportunities 50 TRI (the benchmark) has delivered a CAGR of 9.70% for the period 1st Oct’07 to 30 th Oct 2020. Further, over the last 13 years, NIFTY Dividend Opportunities 50 TRI has outperformed NIFTY 50 TRI by a CAGR of 2%
Further, dividend paying companies are mostly mature and less volatile businesses. These companies may be generating healthy cash flow. According to the fund house, low Interest rates make high dividend yield stocks attractive. Also, current polarized valuations make high dividend yielding stocks attractive and due to change in taxation, many companies are opting for buy back which can be a good way to reward shareholders and improve the valuations of these companies, said the release.