Shares of Oracle Financial Services, Oil India and Coal India rallied more than 60 percent, 30 percent and 20 percent, respectively, on a year-to-date basis. All three stocks that outperformed the markets so far in 2024 are offering high dividend yields.
According to a Quality Dividend Yield Report published by IDBI, there are at least 16 stocks that qualify as quality dividend yield stocks as per their pre-defined filters. The selection criteria used by the research house include more than Rs 800 crore market cap, above 3 percent dividend yield, profit for past three years, and five-year average return on equity of more than 9. Special dividends (one-off) are not taken into consideration, while consistent special dividends are considered for consistent dividend-paying track record.
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On the average, these high-dividend-yield shares have gained 11.8 percent on year-to-date basis when the Nifty 50 gained a mere 0.75 percent. In the past one year, the average returns delivered by this set of high dividend yield stocks has been 51.68 percent when the Nifty 50 has gained 24 percent.
Will high dividend yield stocks outperform?
“In this market, where valuation in many sectors are ahead of fundamentals and this is becoming more a liquidity-driven rally, it is important to bring back your focus on dividend yield stocks. The companies with genuine cash flow can only pay dividends. Therefore, if the dividend yield is decent then it becomes a safety net even if the stock falls. Instead of chasing stocks especially low float PSUs where valuation is not justifiable, it is better to rely on quality high dividend yield stocks,” Purvesh Shelatkar, head of institutional broking at Monarch Networth Capital, said.
In 2024 so far, outperformance has seen in stocks from the oil and gas sector, PSUs, PSU banks, energy and realty sectors. Nifty Oil & Gas index, Nifty CPSE index, Nifty PSU Bank index, Nifty Energy index, Nifty Realty index and Nifty Microcap 250 index have gained more than 10 percent each up to 21 percent with Nifty Oil & Gas index topping the list of Nifty index gainers in 2024.
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