Low-yield stocks could get you higher returns

In a volatile market such as one we are in right now, are investors better off betting on high-dividend yield stocks? After all, buying such stocks is traditionally considered a good defensive strategy in turbulent market conditions. But there is a school of thought that propounds the view that investors tend to overlook capital appreciation, for which equities as an asset class are known for. In other words, the primary objective of equity investments is capital gains, rather than fixed returns. If one was to keep this aspect in mind, low-yield stocks, by virtue of belonging to moderate-to-high growth sectors, could actually have a higher likelihood of giving better returns. “Remarkably, low-yield stocks reported a higher average earnings growth Y-o-Y (65% in FY07 and 37.5% in FY08) vis-à-vis high-yield stocks (30.5% in FY07 and 14.9% in FY08),”