Worried by falling fixed deposit rates? These dividend paying stocks may offer better returns

With fixed deposits rates on a downward trajectory, investors are constantly looking at other options which can fetch better returns.

For instance, returns from FDs are at multi-year lows of 7 percent or less or even less.

Taking into account 30 per cent taxation (the highest tax bracket), the returns fall nearly  to 5 percent which hardly beat inflation.

We look at funds high dividend paying funds/ stock which also have minimal risk.

A thorough diligence in before investing in these stocks /funds is critical.

"Investors must check the business in which these companies are, and whether these businesses have a viable and sustainable growth outlook," says Siddharth Purohit, Senior Equity Research Analyst, Angel Broking. They also need to see if the earnings momentum that these companies show can be maintained.

Promoters' shareholding pattern should also be checked as firms with larger promoter holdings tend to reward investors with regular dividend payouts. "Market capitalisation, average dividend yield, average profit growth and valuation parameters are some of the good indicators for you to select the best dividend yielding stocks," says Dinesh Rohira, Founder & CEO, 5nance.com.

Investors usually compare dividend yield on equity investments with their savings bank interest rates.

"Therefore, any stock with consistent dividend yields in excess of savings bank interest rate, offering decent capital appreciation, while belonging to a credible promoter group is a sound investment option," says Pankaj Pandey, Head of Research, ICICIDirect.

Hence, dividend yielding stocks appear most lucrative in a low-interest rate scenario where fixed income yield is lower.

It must be noted that high dividend yielding stocks with consistent track record usually do well in most market conditions, but underperform in extreme bull markets due to lower growth probability.

Generally, mature companies that have passed their stage of explosive growth tend to offer high dividend yields. On the other hand, high-growth companies tend to plough back their surplus cash into the business, thus offering higher growth and, hence, more appreciation in a bull market.

Read full story here: Taking Stock