NFO of HDFC Dividend Yield Fund open: Check features, suitability before investing

© Provided by The Financial Express The scheme will invest predominantly in stocks of dividend-yielding companies.

HDFC AMC has launched 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 a consistent track record of paying dividends at the time of investment and companies having dividend yield higher than Nifty 50 index. The New Fund Offer is open since November 27, 2020, and closes on December 11, 2020.

The Fund will be market cap and sector-agnostic. The 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). The dividend yield is a financial ratio that shows how much a company pays out in dividends/buyback each year relative to its stock price.

Some features of typical dividend-paying companies:

  • Mature and less volatile businesses
  • Capital intensive businesses like utilities, mining, etc. and annuity cash flow type businesses (Example: A tower company)
  • Healthy Cash Flow generating companies
  • Management Commitment towards shareholders and supports higher ROE

According to the fund house, it is a good time to consider this fund due to the following reasons:

  • Low-Interest Rates make high dividend yield stocks attractive
  • Current polarized valuations make high dividend yielding stocks attractive and
  • 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

Portfolio

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:

  • With Stable business models and stable cash flows
  • Where profits are expected to grow which will lead to increase in dividends – Opportunities across sectors
  • Where companies are expected to do a Buy back
  • Companies trading at attractive dividend yields – (Dividend yield is 1x to 2x G-sec yields)

Fund Suitability

  • Looking for a diversified portfolio of dividend yielding stocks with an objective to provide capital appreciation over long term
  • Aiming for investment in equities with fair amount of stability and relatively lower risk (than other equity funds) over medium to long term
  • Who aim to take advantage of tax arbitrage via mutual fund route compared to direct investing in dividend yielding stocks
  • Who have an investment horizon of 3 years or more