This 16 per cent dividend-paying stock gives a triangle breakout; do you hold it?

Ahead of the result of the US Fed's policy meeting later today, investors traded cautiously during today's session. However, this 16 per cent dividend-paying stock surged 3.61 per cent to form a triangle breakout. Continue reading to learn more about this stock.

Investors traded cautiously in today's session, ahead of the US Federal Reserve's policy meeting outcome slated later today. Nifty 50 started off today’s session marginally higher but dropped 0.34 per cent to 18,082.85 at the closing bell. Metal is one of the few sectors that was trading in green. Nifty Metal index ended up by 0.64 per cent to 6,075.7, with its top constituent up 3.61 per cent to Rs 297.25.

Vedanta Ltd. is the company we are talking about. With a market capitalisation of Rs 1,04,148 crore, Vedanta Ltd is a global diversified natural resources company. The stock also weighed about 8.7 per cent of the Nifty Metal index. The Q2 FY23 earnings of the company were poor, with a reduction in net revenue of 4.11 per cent QoQ to Rs 37,739 crore and a 59.03 per cent drop in its net profit taking it to Rs 1,811 crore.

However, it appears that even poor results did not shock investors, since the demand for its stock remains robust. The hefty dividend yield of 16.07 per cent, which is unusual for a Large-Cap company, is one of the major reasons for this. Furthermore, the company trades at a P/E of 5.54 based on FY22 earnings, which makes it one of the most undervalued large caps in this category. Sectoral average P/E stands at 13.35.

Image: Daily chart of Vedanta Ltd.

Today, the stock generated a strong Symmetrical Triangle breakout on the daily chart, which is critical given today's profit-taking session. Vedanta Ltd. beats both the benchmark Nifty Metals index and the domestic stock market barometer Nifty 50 index. The breakout in today's session appears to be pretty robust, as the stock cruised through the falling trendline resistance.

Having said that, the nearest levels of Rs 310 to Rs 320 would act as a very strong resistance zone. It is the same level from where the stocks had reversed quite violently in the mid of September 2022. As a result, long-term investors should consider this to be a cautious estimate. Therefore, investors should follow a strict stop loss before getting into the trade. However, if the price falls below the rising trendline support of Rs 275, the discussed pattern in this article stands to fail.