HDFC AMC 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 consistent track record of paying dividends at the time of investment and companies having dividend yield higher than Nifty 50 index.
The Fund will be market cap and sector agnostic. 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). Dividend yield is a financial ratio that shows how much a company pays out in dividends/buyback each year relative to its stock price.
According to a communication from the company, the following are the characteristics 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.