Dividend yield is a reliable indicator of a company’s valuation. A high dividend yielding stock represents good cash flows from business operations, supports higher return on equity, and the management’s commitment towards its shareholders. As a result of higher cash flows, dividend yielding stocks tend to be less volatile and hence, less risky.
The current low interest rate scenario and RBI’s accommodative stance bodes well for dividend yielding stocks. Moreover, high dividend yielding stocks are trading at attractive valuations compared to Nifty 50 stocks, thus providing decent investment opportunity.
Hence, HDFC Mutual Fund is of the view that the current economic situation, coupled with attractive stock valuations across broader market, is suited for the launch of HDFC Dividend Yield Fund. The fund will predominantly invest in a diversified portfolio of dividend yielding stocks. It will aim to invest in equities with fair amount of stability and relatively low risk (than other equity funds) over medium to long term.
Being a dividend yield fund, HDFC Dividend Yield Fund is mandated to invest minimum 65% of its assets in equity & equity related instruments of dividend yielding companies. The performance benchmark index of the fund is Nifty Dividend Opportunities 50 Total Return Index.
HDFC Dividend Yield Fund is an open-ended equity scheme that will seek to generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related securities of dividend yielding companies. However, there is no assurance or guarantee that the investment objective of the scheme will be achieved.
Table 1: Details of HDFC Dividend Yield Fund
|Type||An Open ended Equity Scheme predominantly investing in dividend yielding stocks||Category||Dividend Yield Fund|
|Investment Objective||To provide capital appreciation and/or dividend distribution by predominantly investing in a well-diversified portfolio of equity and equity related instruments of dividend yielding companies. However, there can be no assurance that the investment objective of the Scheme will be achieved.|
|Min. Investment||Rs 5,000 and in multiples of Re 1 thereafter||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||
|Fund Manager||Mr. Gopal Agarwal||Benchmark Index||Nifty Dividend Opportunities 50 (Total Returns Index)|
|Issue Opens:||November 27, 2020||Issue Closes:||December 11, 2020|
(Source: Scheme Information Document)
Investment strategy – HDFC Dividend Yield Fund
HDFC Dividend Yield Fund will primarily invest in equity and equity related instruments of dividend yielding companies (minimum 65% of its assets). It will also invest in companies that choose to buy back shares (an effective mean of rewarding shareholders) in addition to or as an alternative to dividend.
The fund will consider companies that have paid dividend (or done a buyback) in at least one of the three preceding financial years. Apart from trailing dividend yield, the fund manager will consider other factors such as business fundamentals, industry outlook, absolute as well as relative valuations, growth outlook, and corporate governance, while picking stocks.
The fund will diversify across major industries, economic sectors as well as market capitalisation to reduce the risk of volatility.
Under normal circumstances, the fund’s asset allocation pattern will be as under:
Table 2: Asset Allocation of HDFC Dividend Yield Fund
(% of assets)
|Equity and Equity related instruments of dividend yielding companies||65||100||Medium to High|
|Equity and equity related instruments of companies other than above||0||35||Medium to High|
|Non-convertible preference shares||0||10||Low to Medium|
|Units of REITs & InvITs||0||10||Medium to High|
|Debt securities, money market instruments, and fixed income derivatives||0||35||Low to Medium|
|Units of mutual fund||0||20||Low to High|
(Source: Scheme Information Document)
The fund has the flexibility to invest up to 35% of its assets in non-dividend yielding companies, units of REITs & InvITs, debt and money market instruments, and units of mutual funds, for diversification.
Who will manage HDFC Dividend Yield Fund?
HDFC Dividend Yield Fund will be managed by Mr Gopal Agarwal.
Mr Gopal Agarwal joined HDFC Mutual Fund as Senior Fund Manager in July 2020. Mr Agarwal has collective experience of 16 years in fund management and 2 years in equity research. He was earlier associated with DSP Investment Managers (India) as Senior Fund Manager and Head – Macro Strategy. He has also served as CIO – Equity at Tata Asset Management Company and has worked as CIO – Equity and Chief Strategist at Mirae Asset Global Investments (India) where he spent nearly a decade.
Fund outlook – HDFC Dividend Yield Fund
HDFC Dividend Yield Fund will invest minimum 65% of its assets in equity & equity related instruments of dividend yielding companies with the flexibility to invest across market capitalization and sectors.
Given the attractive valuations of stocks in the broader markets and favourable dividend yield-to-interest rate ratio, it is a good opportunity to take exposure to Dividend Yield Funds.
Dividend yield funds may perform relatively better during tough market conditions due to better valuations, but may underperform when the market is betting on high growth stocks.
Hence, Dividend yield funds are suitable for investors with moderate to high risk appetite. One should have an investment horizon of at least 5 years before investing in HDFC Dividend Yield Fund.
This article first appeared on PersonalFN here