Does high dividend yield make a good bet?

Post announcement of the jumbo-sized special dividend, Hindustan Zinc is buzzing on Dalal Street. The company's total payout for FY17, including tax, amounts to Rs 27,157 crore. This comes to a yield of almost 17 per cent on the company's current stock price.

With this move, the company stands at the top of the list of largest dividend outflow by any company in India in one financial year.

Normally, investing in a company after looking at its earnings cannot be a good bet, as earnings can be manipulated (as in the case of Satyam fraud). Generally, the company which has a good track record of paying consistent dividends over a long period of time gives you a sense of good corporate governance.

Furthermore, consistent growth in dividend payouts is the best measure to gauge the management's efforts at creating wealth for the shareholders. The dividend is also a good source of return to investors from the company. However, one cannot take investment decision only looking at high dividend, you have to ensure that you buy the right kind of business.

Nowadays, most of the companies are taking the buyback route to reward their shareholders, after the announcement of tax on dividend exceeding Rs. 10 lakh for individual investor.