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Virendra Verma

"If the yield is 8 per cent for a stock, the effective yield (after tax) is much higher for individuals in highest tax bracket."

MUMBAI, May 9

WITH several companies having already announced the dividend to be paid and many more in the pipeline, investors have started buying shares of companies with high dividend yields.

Some of the blue-chip companies whose shares are being eyed by investors on high dividend yield are Hero Honda, Tata Chemicals, Chambal Fertilisers, Bank of India, Gujarat Heavy Chemicals Ltd among others.

In addition, investors are also eyeing several medium-sized companies, which too are providing good dividend yield.

Dividend yield is the dividend paid by the company (in Rs per share) divided by the current market price.

At the current ruling market price, Hero Honda stock has a dividend yield of 8.75 per cent, Great Eastern Shipping yield at today's closing price works out to 9.3 per cent. Chambal Fertiliser has a dividend yield of 9.43 per cent based on last year dividend. Several public sector banks have good dividend yield at current rates making them good investment opportunities, said analysts.

Mr Arun Kejriwal of KRIS Research said, "Dividend yield stocks are good for investors in the current market. Investors may not get very good returns, but the possibility of capital depreciation will not happen."

A similar view is expressed by Mr Sindu Sameer, Vice-President (Institutional Sales), Batlivala & Karani Securities. Mr Sameer feels that, in the current market scenario, it is good to invest in dividend yield stocks. His argument is that even if the stock falls, the possibility of a sharp decline in the price is unlikely.

In addition, stockbrokers said the interest in these stocks is seen following exemption of tax on dividend in the Union Budget of 2003-04. "If the yield is 8 per cent for a stock, the effective yield (after tax) is much higher for individuals in highest tax bracket," said a broker.

Brokers said most of the investors buy these shares for short term (not more than three months) and after receiving the dividend sell them in the market and so their annualised returns are much more than the actual dividend yield.

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