Markets have been highly volatile of late, and this has shifted focus to dividend stocks among long-term investors. Gone are the days when investment in dividend stocks was regarded as a slow, income-only strategy meant for retirees or conservative investors. According to experts, meaningful long-term wealth creation occurs when regular dividend payments are combined with capital appreciation, especially in businesses available at reasonable or low valuations. Paresh Bhagat, Chief Investment Officer (CIO), Veer Growth Fund (AIF), Chairman at Mangal Keshav Financial Services, is of the view that the right way to view dividend stocks is through total shareholder return – dividend yield provides cash income, valuation offers downside comfort, and business or sector re-rating creates upside potential.
What are dividend stocks?
Some companies return a portion of their profits to stockholders in the form of dividends, and the stock of these companies is known as dividend stocks.
For example, Vedanta Ltd. Over the past three years, the company has delivered both generous dividends and strong price appreciation.
“This was not just a yield story – returns were supported by a broader metals sector re-rating, improved cash flows, and better sentiment toward asset-heavy cyclicals. The stock traded at a relatively low price-to-book multiple, allowing investors to earn a healthy yield while waiting for the market to recognise its asset value and earnings potential. With a dividend yield of around 6 per cent and a 3-year CAGR of about 23 per cent, it reflects the power of combining yield with re-rating,” Bhagat said.
What should investors keep in mind while buying dividend stocks?
Investors should focus on opportunities where dividend yield, asset backing, and valuation re-rating work together. The ideal hunting ground is often low P/B businesses with strong cash flow visibility. The price-to-book ratio compares a company’s market capitalisation to its net asset value (book value), indicating how much investors pay for its net assets.
The dividend acts as a carry return, reducing the cost of waiting while the investment thesis plays out.
“A 3-6 per cent yield is typically healthy for stable businesses, while 6 per cent+ yields can be attractive in cyclical sectors if payouts are sustainable. This framework works well in metals, utilities, PSU banks, power finance, and energy companies,” he said.
However, diversification is critical. Blending cyclical high-yield stocks with stable cash generators in FMCG, IT, and utilities ensures resilience. Importantly, not all high-yield stocks are attractive – sometimes yield signals risk. The best opportunities combine yield, valuation comfort, and re-rating potential.
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(This article is for informational purposes only and should not be construed as investment, financial, or other advice.)
