Relying on dividends as a substitute for regular income from fixed-income instruments may not be a good idea
High dividend-paying companies are generally mature firms with fewer reinvestment needs and steady cashflows. The important metric when evaluating a dividend-paying stock is the ‘dividend yield’. The dividend yield is calculated by dividing the annual dividend per share by its current market share. For example, if the annual dividend from a stock ‘X’ is ₹10 and the stock trades at ₹300, then the dividend yield of the stock ‘X’ is 3.3%. According to past years’ data, such companies tend to do better than other stocks during the bear markets. For example, during the last couple of bear phases in India, the Nifty Dividend Opportunities 50 Index outperformed the large-cap (Nifty 50, Nifty 100), as well as the broader market (Nifty 500) indices most of the time.