Dividend Yield Funds

The dividend funds are invested in companies which provide high dividend yields and also enjoy healthy cash flows.

What is Dividend Yield Fund?

A Dividend Yield Fund puts a majority of its portfolio in stocks whose dividend yield is higher than the Nifty 50, the Sensex, or the Nifty Dividend Opportunities 50 index. Dividend yield can be termed as the ratio of the dividend per share to its market price. Rich dividends are paid by these firms and they also boast sound fundamentals. Though their earnings growth may not be among the most consistent performers even though their earnings growth may not be among the highest in the industry. They also manage to deliver good results across business and economic cycles. Dividend Yield Funds invest in stocks which are less volatile than the growth oriented stocks. The performance of these funds is more stable than those of the growth funds.

Why Dividend Yield Funds?

1. Dividend investments can be very profitable in the long – term. Dividends can make up roughly 45% of your total return if you re-invest.

2. A large number of shares must be there by retirement age for the investors who built up a portfolio of dividend paying stocks over a long period of time as more shares means more income.

3. Dividends are less volatile than earnings over time. Companies offering the investors don’t inform them that they’re not going to get them any longer, the firms rather issue dividends also on the lower end of the credit rating scale which are usually established, cash – rich and can ride out tough markets.

Factors affecting Dividend Yield Funds:

Companies should have sound management:

Fund managers suggest the investors to invest in companies which have sound management teams as it will increase the future earnings and returns on investments. Before an investment is made by an investor it is important to have a look at the company profile.

Earning capacity of the companies:

Companies should be capable of generating good earnings, as the fortune of its investor’s is also dependent on the same. Some of the factors like brand equity must be paid attention it is very important.

High returns:

Companies should be a consistent performer and also be capable of generating appealing return on capital.

Buy at the right price:

The investor should buy companies stock but keeping in mind that the valuation needs to be assessed as the main aim of purchasing stocks. This provides a margin of safety to the investors.

Long - term investment approach:

It is one of the vital role which generally gets ignored. A long term investment approach must be there while investing stocks or otherwise the investor may have to face some unpredictable challenges.

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