Dividend Stocks To The Rescue

Volatile markets call for investors to be cautious. Market correction often leads to investors rethinking their original portfolio strategy and asset allocation. Deep market corrections also lead us to focus on the safety net of high dividend-yielding stocks. Yogesh Supekar discusses the importance of having high dividend-yielding stocks in the portfolio while also highlighting the emerging opportunities in the market owing to steep correction

- Yogesh Supekar

The market correction this time around has surprised the bulls even as the optimistic bears eye further downsides. While several economists and market analysts speculate a recessionary period for the economy and hence a bear market for equities, investors have started to seriously rethink their portfolio strategy biased towards growth stocks. Time and again we have seen that higher inflationary periods and rising interest rates impact most negatively the growth stocks. In the past few years, we have evidence of investors lapping up on growth stocks and ignoring value stocks.

However, the trend of growth investing seems to be taking a huge hit in the course of the recent market correction as is evidenced by the drop in NASDAQ and IT stocks in the Indian markets. The preference for value stocks amongst portfolio managers is discussed in investing circles. Here is where the dividend-yielding stocks come into play. High dividend-paying stocks are considered to have some embedded value not only because of their ability to pay dividends consistently but due to stability in earnings.

It is not unusual to see a fall in stock prices getting arrested owing to the high dividend yield that a stock has on offer. There is high probability of investors chasing high-dividend yield stocks in market downturns and hence the buying can emerge earlier in high-quality dividend-yielding stocks than the hot and most popular growth stocks. So, why prefer dividend-yielding stocks over non-dividend-yielding stocks? The basic requirement before choosing any stock for investing is to verify if the fundamentals of the stock under consideration are good. A consistent dividend pay-out supports the story of strong fundamentals for the stock and hence it instantly becomes appealing for investors who are willing to buy and hold for the long term.