Investing in High Dividend Yielding Companies while also Appreciating Your Capital

Dividends can be a great source of passive income for everyone, be it students, professionals, or businessmen. Whenever we think of dividend-paying stocks, we think of Public Sector Undertakings, which are not known for giving multi-bagger returns. So, are you wondering which dividend stocks to buy now?

To answer this question, we introduce you to our smallcase portfolio- High Dividend Yield and Capital Appreciation, comprised majorly of small-cap companies capable of giving high dividend yield as well as capital appreciation. It is one of the best smallcases to begin your investment journey.

About the smallcase

This smallcase serves the investors looking for capital appreciation and want a regular income in terms of dividends. The companies chosen here are those that have high and constant dividend yields. Therefore, this smallcase helps investors get an income from their investments without having to sell their stocks. Dividend income is not something the mutual funds offer, which we have resolved with our smallcase.

Investment Drivers

While the investments are undertaken with the objective of capital appreciation and wealth creation, our smallcase knit-picks stocks that have constant dividend returns. Furthermore, the declaration of dividends by companies is a sign of financial soundness and overall investor appreciation. Consistent dividend returns are a sign of financial stability and enable overall corporate governance.

We look at businesses that have an operating margin of at least 15%. Operating margins should be improving; an industry high operating margin indicates cost efficiencies, process efficiencies, and many other competitive advantages.

Investment Philosophy

The purpose of the smallcase is to invest in 15-20 companies with consistent high dividend yields and investments with the potential to generate capital appreciation. Only those companies that have a strong balance sheet are chosen, and this is made sure by picking only those stocks with low debt on books. D/E ratio is an essential screening criterion here.

Further, it is paramount that the companies are available at a reasonable valuation to maximize profits. It is also made sure that the management of such companies has strong integrity, is capable and has overall good corporate governance.

The portfolio follows a multi-cap strategy (invests in Large Cap, Mid Cap and Small Cap shares). This helps in diversification across different companies that have varied growth expectations.

Companies are chosen which are well researched and whose news is easily available. This helps to track the company working more closely and efficiently. This comes in handy, especially for rebalancing or restructuring of the smallcase.

Who should invest in this smallcase?

This smallcase is best suited for clients looking for regular income apart from capital appreciation. It can be suitable for retired personnel for whom dividends can serve as a source of income. For investors, it might take a period of 3-5 years for capital appreciation to have its effect. Therefore, dividend income can be a great added income from investments. Investors looking at investing for a short horizon of 3-5 years and getting small annual returns should definitely invest into this smallcase.