Dividend yields Sensex & Nifty

With the stock markets crashing and falling like 9 pins, some of the stocks have reached levels that are simply mouthwatering. Its a phase in the market that is both exciting and involving. Exciting as there is a good potential to earn super returns and involving as you have to make the right choices. Its no longer a blind game, wherein everyone from your driver to watchman was recommending stocks, and making money!!!

Now with PE's losing their meaning there are 2 fundamentals one should look at:

1) The company should be stable and not look like it will close down.

2) Look at the dividend yields the company is offering, this is essence means an indirect comparision with the PE's of the company.

A small e.g. will make it little clearer. . .Company X is quoting at a price of 100, with EPS of 20, this implies a PE of 5. It gives a dividend of Rs 4 per share. This in essence means that every year you would be getting a return of atleast 4% even if the price falls. In my opinion the further the price of shares fall, more attractive their dividend yields become. And there comes a point wherein the dividend yields actually surpass or become very close to the market rate of interest and that is the time to buy equities heavily.

Currently there are some stocks that are quoting at dividend yields of around 6%-7% also. The trick is to identify such stable companies. My personal favourite is brokerages. Some of the stocks such as India infoline and Indiabulls etc are quoting at good dividend yields however some of the PE's like that of India infoline are still higher, hence it makes sense to analyse both the parameters before entering into a trade.