Investors look at the dividend yield to ensure a certain amount of return on their investment, even if share prices remain subdued. However, not all of them are attractive
High dividend stocks have always been considered as safe investment opportunities by market participants, especially in uncertain times like these when markets are volatile due to coronavirus pandemic.
Investors look at the dividend yield to ensure a certain amount of return on their investment, even if share prices remain subdued.
However, this does not mean that all dividend stocks are attractive for investment, say experts.
"During a downturn, dividend yield gains more importance. High dividend yield stocks need to be considered on a case-to-case basis given that many may not be attractive investment bets. Valuations, earnings growth expectations, and the upside potential should always be considered while stock-picking," said Siddharth Sedani, Vice President- Equity Advisory, Anand Rathi Shares and Stock Brokers.
"High dividend yields also tend to provide a downside cushion for stocks. Once demand revives, there could be capital appreciation too. With yields on long-term (10-year) government securities expected to slip below 6 percent, it will only make high-dividend yield stocks attractive," Sedani said.
Arjun Yash Mahajan, Head – Institutional Business at Reliance Securities, believes dividend stocks are investors' delight.
"High dividend-paying companies are a delight for shareholders, in particular for low-risk appetite investors. Investors generally hold high dividend-paying companies for a long term. It is time tested that high dividend-paying companies do not disappoint their shareholders year-on-year. Cash-rich companies, even after accounting for their yearly CAPEX, do make sure that certain amount of profits is distributed to shareholders in the form of dividends," said Mahajan.
Here are 8 dividend stocks from various sectors that investors can look at, as recommended by analysts:
Analyst: Siddharth Sedani, Vice President- Equity Advisory, Anand Rathi Shares and Stock Brokers | For a one-year timeframe
Hero MotoCorp | Target price: Rs 2,902
The company gained market share in the motorcycles segment and has retained very strong leadership in Entry and Deluxe.
The volumes are ramping up gradually. India’s two-wheeler story stays intact as two-wheeler is a not a luxury in India, it is about mass mobility and also as social distancing norms are observed, it could give rise to a shift towards personal mobility.
"We continue to remain positive on the company over medium to longer-term perspective with a target price of Rs 2,902," said the analyst.
Karnataka Bank | Target price: Rs 60
With half the bank’s portfolio under a moratorium, asset quality may come under stress once the moratorium is lifted which may keep FY21 earnings muted.
"With the expected pick-up in earnings in FY22 and limited downside from current levels, we continue to remain positive on the company over medium to longer-term perspective with a target price of Rs 60," said the analyst.
Pfizer | Target price: Rs 4,449
Pfizer’s Q4 results were hurt by the COVID’19-compelled country-wide lock-down.
Pfizer’s sales fell 6 percent year-on-year (YoY) to Rs 500 crore. Were it not for the brand divestment and lockdown, they would have grown nearly 4 percent.
Also recently, Pfizer and German mRNA partner BioNTech have secured an FDA fast-track label for their COVID-19 vaccine candidates. They plan to start phase 2b/3 trials with 30,000 patients.
"We continue to remain positive on the company over medium to longer-term perspective with a target price of Rs 4,449," said the analyst.
Analyst: Naveen Kulkarni, Chief Investment Officer, Axis Securities | For a one-year timeframe
ITC | Target price: Rs 230
In FY20, the company gave a dividend of Rs 10 which is more than a 5 percent dividend yield.
The company has very stable business revenues and solid cash balances to maintain the dividend yield.
"We like the growth in the food business of the company. ITC is one of the rare companies which offers both dividend yield and growth prospects," said the analyst.
Power grid corporation | Target price: 210
Power grid corporation is a company with a consistent dividend history and reasonable long-term growth prospects. It also offers more than a 5 percent dividend yield.
Hindustan Zinc | Target price: Rs 235
The company has a long dividend history. On the FY20 dividend, the yield works out to 7 percent.
The pricing scenario is improving and globally metal stocks have been doing better now.
Analyst: Arjun Yash Mahajan, Head – Institutional Business at Reliance Securities | For a two-year timeframe
Petronet LNG | Target price: Rs 335
The company has a high dividend payout track record.
The decline in spot LNG and crude oil prices is positive for the company. The annual running cost of the LNG fuelled truck is 38 percent cheaper to diesel.
Kochi-Mangalore pipeline is a key growth driver. With no risk from new players, LNG dispensing stations are a new long-term growth story.
Mphasis | Target price: Rs 1,200
Healthy direct core business may drive the company's dollar revenue growth of 9.2 percent and EPS growth of 12.8 percent and 10.6 percent in FY22E and FY23E.
Resilient business profile with limited exposure to COVID affected verticals, DXC Tech/Hewlett Packard (HP) business is likely to remain soft but the near-term downside is protected.
The company is well-placed to cash in significant transformation opportunities in Blackstone portfolio companies.
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