When inflation is at 12 percent and your bank deposits offer a maximum of 9 percent, the real rate of return is in negative infact your capital is getting eroded by 3 percent.

The stock markets have seen increased volatility because of US financial crisis and adverse factors like high crude oil and commodity prices and the economic slowdown being experienced in India and globally, making the share markets look a dangerous place to invest in.

What are the options left for investors? Are there any safe investing bets where your money will be safe and also grow reasonably?

The safest place in such times is to invest in high dividend yield stocks, which do relatively better during stock market downturns while offering reasonably good upsides when the stock markets take a turn for the better.

A healthy dividend yield and sound business prospects provides the twin advantage of a consistent cash inflow and potential for capital appreciation.

Now comes the crux of the matter; how to pick stocks which will deliver. Judicious selection of stocks though is very crucial. Some of the factors which you should keep in mind are:

1. Consistent track record (financial and dividend paying),
2. Company’s strengths in its business and its market position
3. Positive cash-flows
4. Management quality
5. Sound business model and
6. Ability to sustain growth rates

These factors will ensure that the company sustains the dividend payouts, if not increase, even during stock market crashes.

Now, if valuations are also reasonably attractive, it makes a strong case for investment. Here are some companies that offer healthy dividend yields and good potential for upside over the next 12-15 months.

Ashok Leyland

Slow down in the economy and the increasing interest rates have hit the auto sector hard. Despite a drop in truck sales (volumes), the company managed to record a 7.8 per cent growth in net sales to Rs 7,729 crore for FY08 on the back of a 51 per cent y-o-y increase in bus sales, engines (up 36.7 per cent) and spares (up 44.7 per cent).

The company had taken certain control measures which resulted in growth in operating profits at 14 per cent (Rs 796 crore) and net profit by 6.4 per cent (Rs 469 crore) in FY08.

Ashok Leyland has tied up with Nissan for light commercial vehicles (CV) to increase its product portfolio and to diversify its revenue stream. The company is also increasing the proportion of non-cyclical businesses (bus, exports, engines and spare parts/defense kits) which contribute 33 per cent of the revenues.

Its integrated manufacturing unit at Uttarakhand, which will be operational in this fiscal, will not only take care of market demand but also provide tax breaks.