Coronavirus spread has led to slowdown in economic activities across the globe and fear of recession has stepped in. We already see 10% plus correction in SENSEX and are more likely to enter into bear market with further fall. While the situation is unfortunate, we need to have faith and build a high yield dividend stocks portfolio.

You have a good opportunity to build your high yield dividend portfolio when most of the stocks are available at deep discount in Indian stock market. Here are the ones that I picked up based on dividend yield, dividend consistency, increase in absolute dividend over last 5 years.

What to buy?

Here is my recommendation of 15 companies that have a good business model and will continue for next 10-15 years. These companies have near zero d/e ratio (debt to equity ratio) and have been profitable consistently in past 5 years. The table below not only focuses on best dividend stocks in India with high yield but also looks for other factors which are equally important. It provides Price of the stock, how much it is off from 52 weeks, dividend yield , dividend consistency and dividend amount.

Table with dividend stocks at attractive valuations
Company NamePrice as of 6 March 2020Drop vs. 52 W HIGHDiv. yieldPayout RatioDiv. TrendCapital gain
est. 3 Yr
d/e ratio
Indiabulls housing252.6-73%14.0%45%UpHigh5.5
ONGC89.9-50%7.7%22%StableHigh0.1
National Aluminium33.1-44%17.6%67%StableHigh0.0
OIL105.0-44%9.8%31%StableLow0.3
ITC182.4-41%3.2%45%UpVery high0.0
Coal India171.2-37%7.7%77%StableMedium0.0
Ashok Leyland69.3-29%4.4%33%UpHigh0.1
PFC110.6-20%8.6%35%StableMedium6.8
SJVN22.7-18%9.5%49%StableMedium0.2
HDFC2121.0-15%1.0%37%UpHigh4.7
Infosys738.3-13%2.9%80%UpHigh0.0
Power Grid192.1-11%4.4%45%UpMedium2.3
TCS2092.0-9%1.4%31%UpHigh0.0
Asian Paints1861.0-3%0.6%33%UpHigh0.0
Pidilite Industry1614.0-2%0.4%28%UpMedium0.0

Why did we select above companies?

Vs. 52 week high – How much below is the stock price compared to 1 year high. E.g. ONGC stock is at 50% discount compared to 52 Week high.
Dividend yield – Percentage of money invested that once could expect to get back as dividend each year.
Payout Ratio – Percentage of profits paid as dividend. Ideally should be 70% or less so that rest of profits can be reinvested in business for future growth.
Dividend Consistency – Above companies have been consistent in paying out dividend in last 5 years or more. Remember, while high yield is good, we need consistency as well.
Dividend amount trend – Stable means we estimate to receive same amount over years. Increasing means we estimate to get more dividend income each year with growing business.

Capital gain potential in 3 Years – We expect the amount invested in above companies will appreciate once market reverses over next 3 years or more.
Dividend consistency – Above companies have provided dividend consistently for last 5 years and we estimate they will continue to do same
D/E Ratio – Means debt to equity ratio. Ideal ratio is 0 means company does not have any debt and can pay profit as dividend easily. 1 is considered good for all companies except financing companies. For financing companies such as HDFC, PFC and India Bulls Housing the ratio is well below industry average, means they have more money than peers to pay as dividends.

How to build high yield dividend portfolio in middle of stock market crash?

Since no one know where is the bottom, I use double down with every 10% drop in Sensex. Let’s assume that Sensex will fall upto 30% and you have kept 17.5 lacs aside for long term investment (5-7 years duration). As of 6th March, we have 10% drop compared to February 2019, therefore invest first 2.5 lacs. If it falls further 10%, invest next 5 lacs in same stocks. For next 10% fall, invest remaining 10 lacs and sit tight for at least 3 years. I went in with equal capital allotment for each of above stocks.

When to sell?

You can decide after 3 years or based on recovery, if you want to remain invested and get dividends or take capital gains for some stocks. I would keep most of them forever unless I see issues with the company’s business model. To help you further, I prepare valuation of each stock I own and will publish from April 2020. Stay tuned.

Remember the quote from legendary investor Warren Buffet ” the time to buy is when there’s blood in the streets. ” Don’t keep worrying about where is the bottom but to take action and build high yield dividend stocks portfolio with current stock market crash. If we survive this, mostly we will, you will have a good dividend income and get a step closer to financial freedom.

Summary