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An underappreciated value strategy for tough marketsP V K Mohan, Principal Mutual Fund,

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Key Take-Aways
  • Dividend yield funds focus on companies that generate good cash flow and give back money to shareholders in the form of dividends and buy backs in a sustainable manner.

  • To evaluate, investors need to consider the dividend paid out last year, the sustainability of dividends / buy backs and cash flow generation.

  • While dividend yield funds look for companies with sustainable cash flows, multi-cap fund are chasing companies where fundamentals are not as great today but will have a stronger position in future.

  • Dividend yield funds have less volatility, reasonable stable returns and will outperform during choppy markets where cost of capital is rising.

  • Stocks that are typical found in dividend yield funds are from IT and consumer industries. These funds make sense from longer-term perspective.

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