These stocks with dividend yields are beating fixed deposit rates

Investors gain from the stock market via two channels: change in stock prices as capital gains and through dividend payouts by the companies from profits or surplus out of divestments during a period.

Conservative investors looking for comfort and safety of just keeping money in their savings bank accounts have seen the payout dwindling over the years as the interest rate cycle went downwards. This interest rate cycle has turned around last year as the central bank started fighting inflation in the economy.

While basic savings accounts interest rates have bumped up from around 3-3.5% to 4-5% over the last one year, scramble to get demand deposits has pushed up fixed deposit rates from around 5-6% to 7-9%.

But there are other options with slightly higher risk.

Those willing to take the additional risk of investing in stocks, including penny stocks, need not only depend on trading to make money. In some cases, the dividend yields in such stocks, too, beat the interest rate offered by banks.

Companies which are generating profits share part of the surplus cash pumped out from the business to reward their shareholders as dividends. These bring additional gains for investors even if the share price has remained static.

Some conservative investors and indeed even mature ones pick stocks that have a generous dividend policy. This tends to keep liquidity and adds to total returns they can churn from a single investment.

One of the ways to pick stocks that reward shareholders over and above the price movement is to look at dividend yields. In simple terms, it is the pay-out being shared with stockholders as a percentage of the stock price.

We scanned through the list of high dividend yield stocks based on the current price and dividend pay-out over the last one year.

If we look at stocks with dividend yields above the 9% range we get a list of 18 stocks.

Top of the chart is a little-known micro-cap penny stock Elcid Investments that announced a dividend many times its own share price.

But if we look beyond such one-off outliers, we get a list of a dozen odd stocks, mostly commodity-oriented companies and infrastructure investment trusts, offering double digit dividend yield. These include: Narmada Gelatines, Vedanta, The Indian Card Clothing, India Infrastructure Trust, RSWM, INEOS Styrolution, Sanofi India, IRB InvIT, Hindustan Zinc, REC, Coal India and Shrem InvIT.

Others with trailing dividend yield of 9-10% include Banco Products, Forbes & Co, PowerGrid Infrastructure Investment Trust, Hinduja Global Solutions and India Grid Trust.

Notably, investors should not look at high dividend yield stocks as a safe pick as they may still lose money if the share price goes down and they are forced to sell it for liquidity purposes. Moreover, the companies may reduce the dividend in the future.