Tata Dividend Yield: Invest :: Business Line

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Dividend yield funds, which invest mostly in companies that pay out good dividends, could be a good bet in current unpredictable times. Tata Dividend Yield Fund has a good long-term return record across market cycles. The fund aims to invest at least 70 per cent of its portfolio in stocks with a dividend yield (dividends as a proportion to the stock’s market price) above that of the Sensex, which is at 1.54 per cent now.

The fund’s large-cap (market capitalisation of over Rs 7,500 crore) orientation also lowers the overall risk. The June 2013 portfolio has an average market capitalisation of Rs 50,272 crore. Barring 2008, dividends have been paid at least once every year.

Investors who want to shield their portfolio from volatility can buy units of the fund in small amounts. However, Tata Mutual Fund has recently changed fund managers across schemes including Tata Dividend Yield. This fund is now being managed by Rupesh Patel.

PERFORMANCE

Over the three- and five-year period, the fund delivered returns of 3 to 7 percentage points above its benchmark CNX-500. Annual rolling returns of the fund over the past five years show it beating the CNX-500 a good 83 per cent of the time. But like all dividend yield funds, the past one year has not been very good. Tata Dividend Yield returned 5 per cent against the CNX 500’s 11 per cent. The fund appeared to have taken valuation calls and exited performers such as GSK Consumer Healthcare and Hindustan Unilever. At the same time, it retained good dividend payers but poor market performers such as Bank of Baroda, Cairn India and Coal India.

Even so, one-year performance is better than peers’ such as Birla Sun Life Dividend Yield. Over longer time frames, Tata Dividend Yield comes in among the top. While the dividend yield funds from BNP Paribas and ING Vysya have fared better, those funds have either mid-cap allocations or smaller asset sizes pegging up risk.

PORTFOLIO

The fund has stuck to its mandate of investing in stocks with high dividend yield. Average portfolio yield for June stood at 2.4 per cent. The portfolio juggles a limited number of sectors, and has got its timing right for the most part. Software stocks have usually been the top holding over the past five years. Holdings in those such as Infosys, Polaris Financial and NIIT Technology have paid off well in terms of superior dividends. The FMCG sector also ranked high in sector holdings until early 2013. The sector’s share dropped to just 5.9 per cent by June, with the fund exiting stocks such as GSK Consumer and Hindustan Unilever, while paring holdings in ITC. Additions have recently been made to banks and financial services. Other sectors seeing an ebb and flow in holdings are mining, automobile, and oil stocks.