We would like to draw attention to a theme that is a value investor's favourite during times of market meltdowns. It goes by the name 'high dividend yield stocks'. High dividend yield essentially means stocks that earn higher dividend per share as compared to their market price. A ratio of dividend to price per share indicates the investors' return on capital purely from dividends earned. During times of earnings downgrades we often find investors lapping on to stocks where the dividend payout is good. But the sad part is that they do so even if the valuations are expensive. The dividend yields are in fact a safer way to buy into stocks that have a steady history of dividend payouts.
Another advantage of having fundamentally sound dividend stocks in one's portfolio is the fact that these tend to be relatively stable vis-à-vis the markets. That is in the event of a considerable fall in overall markets, the prices of these stocks remain relatively less affected. This is primarily because during times of falling prices, the dividend yields of these stocks become very attractive. As a result of this, the downside in these stocks is limited until and unless there is something seriously wrong with the fundamentals of the company. Moreover, these stocks tend to appreciate with the general markets, though the rise may not be very spectacular. Thus, dividend stocks are a good option for investors with lower risk appetite and who prefer a steady income with a scope for capital appreciation.
Source: Equity Master
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