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Dividends Are Divine In A ZIRP World

Science of Alpha from Safety

Dividends Are Divine In A ZIRP World

Generating Higher Income with Investment Grade Equity - AAA rated companies

Summary

  • In tandem with the ZIRP-world RBI has kept interest rates low resulting in fixed income instruments such as bank FDs, GSecs, Corporate bonds, Debt funds, etc. yielding low returns leaving income-dependent investors searching for yields.
  • Contrary to the typical investor chasing yields in securities of low-rated companies or complex and opaque structured products, the Scientific Investor looks for fundamental safety rather than illusory, contractual safety combined with high yields across the securities spectrum ranging from senior secured debt to preference shares and equities.
  • Across the securities spectrum, Scientific Investing enhances returns by focusing on the highest-yielding security issued by fundamentally strong companies.
  • Scientific Investing delivers an opportunity to increase investment income in the Omni Super Dividend Portfolio of fundamentally strong AAA-rated companies, i.e., investment grade equity, which have significantly higher dividend yields compared to fixed income instruments.
  • The principal risk of this portfolio is that it is an equity portfolio and hence carries all the risks of equity investing.
  • Another risk is that the dividend pay-outs are not contractually assured as in fixed income instruments.
  • Mitigating this pay-out risk is a Government of India, DIPAM guideline which makes it likely that dividend pay-outs will be maintained at a certain level.
  • This is a unique opportunity to generate higher income at nearly 8% in a ZIRP-world while also having the potential of capital growth over the long-term; albeit with equity risks.

Download the full report Omni Super Dividend Report

 

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