Does high dividend yield stocks create Wealth?

I was very surprised after reading a piece on Wealth Creators by Moneylife given the returns generated by high dividend yield stocks over 1998-2008. Here is the list of companies whose payout is high with the returns (including dividends earned).

Castrol India : 31%

Abbott India : 26%

P&G Hygiene & Healthcare : 21%

GlaxoSmithKline Consumer : 13%

Wyeth : (-7%)

Merck: (-22%)

Ingersoll-Rand (India) : (-22%)

Gillette India : (-27%)

Novartis India : (-30%)

Clearly, from above, one get a sense that high dividend yield stocks have turned out to be wealth destroyers rather than wealth creators. One would have been better off with bank FDs. According to ace investor Rakesh Jhunjhunwala, Multinationals have the worst corporate goverance standards in India. That might be one of the reasons for such pathetic returns.

But on the other hand, we have stocks like Phoenix Mills, Orient Abrasives, Motherson Sumi and Sesa Goa, where dividends have created wealth for the shareholders. If one goes by the top 20 wealth creators of 1998-2008, only 6  stocks have earned more dividend than the  capital gains. That’s a mere 30% success. So, it would be fair to say that high dividend yield stocks should be avoided from a longer term perspective.


2 responses to “Does high dividend yield stocks create Wealth?

  1. Missed this – when did RJ say this about MNC’s having worst Corp Governance in India? Why exactly?

  2. In some of his interviews. They route their investments through unlisted subsidiary. Also, most of these guys payout in single digits.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s