Monday, 7 December 2020

HDFC AMC Launches HDFC Dividend Yield Fund

         HDFC AMC Launches HDFC Dividend Yield Fund


-       An open ended equity scheme predominantly investing in dividend yielding stocks


HDFC AMC launches HDFC Dividend Yield Fund, an open ended equity fund that aims to invest predominantly in stocks of dividend yielding companies with a preference for companies that have consistent track record of paying dividends at the time of investment and companies having dividend yield higher than Nifty 50 index. The Fund will be market cap and sector agnostic. Dividend yield is a good valuation indicator and companies that have high dividend yield represent good cash flow in business and management commitment towards shareholders. Also, such companies have a higher Return on Equity (ROE). Dividend yield is a financial ratio that shows how much a company pays out in dividends/buyback each year relative to its stock price.


Following are the characteristics of typical dividend paying companies:

o    Mature and less volatile businesses

o    Capital intensive businesses like utilities, mining, etc. and annuity cash flow type businesses (Example: A tower company)

o    Healthy Cash Flow generating companies

o    Management Commitment towards shareholders and supports higher ROE


Why Invest Now?

We believe it is a good time to consider this fund due to following reasons:

o    Low Interest Rates make high dividend yield stocks attractive

o    Current polarized valuations make high dividend yielding stocks attractive and

o    Due to change in taxation, many companies are opting for buy back which can be a good way to reward shareholders and improve the valuations of these companies


NIFTY Dividend Opportunities 50 TRI (the benchmark) has delivered a CAGR of 9.70% for the period 1st Oct’07 to 30th Oct 2020. Further, over the last 13 years, NIFTY Dividend Opportunities 50 TRI has outperformed NIFTY 50 TRI by a CAGR of ~2%. (Source: MFI)


Portfolio Construct

The Fund Manager will look to build a diversified portfolio of companies present across sectors and market cap. Aim will be to invest in companies:

o    with Stable business models and stable cash flows

o    where profits are expected to grow which will lead to increase in dividends - Opportunities across sectors

o    where companies are expected to do a Buy back

o    Companies trading at attractive dividend yields - (Dividend yield is 1x to 2x G-sec yields)


Fund Suitability - The Fund is suitable for investors:

o    Looking for a diversified portfolio of dividend yielding stocks with an objective to provide capital appreciation over long term

o    Aiming for investment in equities with fair amount of stability and relatively lower risk (than other equity funds) over medium to long term

o    Who aim to take advantage of tax arbitrage via mutual fund route compared to direct investing in dividend yielding stocks

o    Who have an investment horizon of 3 years or more

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