With the Sensex already at the 5,500 levels, how much can your investments appreciate? It all depends on how you choose your stock and one way could be to pick high dividend yielding stocks. Dividend yield is described simply as the dividend per share as a percentage of the market price. So a high dividend yielding stock would be one where, typically, the stock price is depressed and the dividend per share is high as well. Such stocks are expected to have a lower downside as well as a lower upside. More importantly, a high dividend yielding stock could remain that way for quite a long period, so investors in such stocks (and funds investing in such stocks) should have a long horizon. Incidentally, the first such fund was the Birla Dividend Yield Plus, launched in February '03.
Principal PNB Mutual Fund too has spotted this opportunity and launched a dividend yield fund that would invest at least 65 per cent of its portfolio in high dividend yielding stocks, with dividend yields of more than 1.50 times that of NSE Nifty. While this criteria would be used for shortlisting, the shortlisted ones would subsequently be subjected to a fundamental business and financial analysis. So, while strong business fundamentals would suggest high dividends, a high dividend yield in comparison to the index would suggest attractive valuations.
The fund's IPO is closing on September 27, 2004. It would invest at least 65 per cent of its assets in stocks with a dividend yield of more than 1.50 times the dividend yield of the NSE Nifty. According to the company's research, this criterion itself would be sufficient to ensure adequate diversification of the portfolio. The minimum application amount has been stipulated at Rs 5,000. The fund would be available under two investment plans - growth and dividend.