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Vivek Sukhani
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Joined: 23/Jul/2006
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   Topic: Dividend vs.Growth. What to look for?
Posted: 02/Aug/2006 at 6:24pm |
good way of looking at things.Also remember, besides inox, the next big thing that will be there will be Imax. But you know the problem with such companies is that, it becomes very difficult to forecast their valuations.other than EPS, we dont get another way of making an alternative valuation. The book values are not supportive. They hardly pay any dividend, so yield wise it becomes very difficult to predict or arrive at a value. It is a concept fundamentalists' delight, no doubt.... but financial fundamentalist would take a litlle bit more tume to arrive at a buy call.
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basant
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Posted: 02/Aug/2006 at 6:53pm |
I guess Adlabs is the company that holds the Imax theatre but Anil Ambani's open offer and fresh issue of equity had distorted the financials of Adlabs. They are getting into everything from multiplexes to film and TV serial production, FM radios and you name it. the problem with a one year investor in Adlabs would be that none of these businesses will achieve traction and the stock prices would appear over priced the moment they went up by say 50% and then start to head down wards. I did make some buy and sale trades in Adlabs but that was when it was at 100 and I got out at 235 odd the stock went up to 450 something and has probably retraced.
I am a growth investor but as most of the other growth investors we defend ourselves by putting in a caveat GARP (growth at reasonable price) According to me we use that term because that is just another way to tell the world that " hey i am not chasing momentum"
Now coming to the dividend yield argument I feel that dividends can be paid only by mature businesses. A company that can grow at 30% with an RoE of 30% loses 30paisa for each rupee of dividend paid. After all if dividends can be put to use by the company to generate more then normal growth then they should be doing that.
If a company’s RoE is more then 20% then it could get away by paying nominal dividends and shareholders shall not complaint but in case the RoE is less then 12% then the company better pay up as a return of 12%+ can be generated by shareholders themselves. Moreover shareholders are incurring higher opportunity cost of capital
I have tracked the early history of almost all growth companies and none of them over paid dividends in the initial years of growth. Therefore I do not think that we could get many dividend yield stocks from growth companies. Alternatively dividend yield stocks will not reflect growth because then they would not have paid dividends but put it to use themselves.
So it is really a matter of preference what strategy you and me and all of us can follow and I personally feel that dividend paying companies protect downside risk and cannot create market cap while growth companies create market cap and cannot protect downside risk. What growth companies do how ever is grow the EPs so that next year the same stock looks cheaper and then looks cheaper a bit more the year after that. You may find the following link interesting. it talks about dividend paying companies and the fine print to look out for the.
But before I end my argument you will be happy to know that 41% of all shareholder returns are made through dividend payments the other 59% through capital gains. So growth investors do take some risk when they ignore dividends?
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Vivek Sukhani
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Joined: 23/Jul/2006
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Posted: 02/Aug/2006 at 10:44pm |
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Mr. basant, I tend to disagree with you a little bit. My personal experience has been that high dividend paying stocks, also create a lot of value for shareholders.Dividend is an expression of shareholders' reward. I used to have tremendously heated debates with analysts when they used to point out the futility of bonuses and dividends.You will start to see many companies starting to shine even during this period of weak market sentiment.And beleive you me, most of them will be high pay-out players.I beleive as an investing community, we need to balance between growth and dividend.I look at the pace of increase in dividends rather than mere pay-outs.Cipla , Pidilite, ITC look not so attractive yield-wise, but all these 3 companies have doled more dividends year after year for last 10 years at a stretch.Thats what makes them special.It gives the investors the necessary confidence.
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kulman
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Joined: 02/Sep/2006
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Posted: 04/Apr/2007 at 9:41am |
| Over 120 dividend paying companies currently have a dividend yield of over five per cent, according to a study. The dividend yield is based on the current market price and dividend paid in the financial year 2005-06. |
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| The 100-odd companies that paid interim dividend for the financial year 2006-07 are excluded from the sample. Around 959 firms have declared a dividend in the last three years. |
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| The study reveals that high dividend-yield stocks are historically the best bet in a bear market. When the cycle turns bullish, it is likely that these stocks will fetch returns in excess of 100 per cent. |
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Most of the mid-cap and small-cap companies have been offering high dividend yields. These companies have shown a growth in net profit in the first nine months of FY07.
| A NEW BREED |
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Dividend per share (%) |
Dividend
Yield (%) |
Price
(in Rs) |
| 2004 |
2005 |
2006 |
| Tube Investments |
100 |
70 |
235 |
8.9 |
52.90 |
| Andhra Sugars |
40 |
60 |
75 |
8.7 |
86.25 |
| Varun Shipping |
16 |
30 |
45 |
8.7 |
51.95 |
| Ador Welding |
25 |
80 |
150 |
8.4 |
178.35 |
| Everest Inds |
325 |
50 |
70 |
8.3 |
84.00 |
| Rajshree Sugars |
15 |
30 |
50 |
7.8 |
64.00 |
| Chamanlal Setia |
25 |
30 |
20 |
7.7 |
25.90 |
| Wim Plast |
35 |
35 |
35 |
7.7 |
45.45 |
| Hariyana Ship |
5 |
10 |
20 |
7.7 |
26.00 |
| Divyashakti Grant |
10 |
15 |
15 |
7.5 |
20.05 | |
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| A total of 959 companies paid total dividend of Rs 15,472 crore in FY06, accounting for 25 per cent of the total net profit of Rs 60,827 crore posted in the given financial year. |
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| Hawkins Cookers, quoting at Rs 83 on the BSE, trades at a dividend yield of 6 per cent. |
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| The company paid a dividend of Rs 5 a share on net profits of Rs 4.03 crore in FY06. It posted a net profit of Rs 4.48 crore during the first nine months (April-December) of FY07. Allahabad Bank, Wyeth, Berger Paints and Cosmo Films are trading at a dividend yield of 5.5 per cent each. |
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| Allahabad Bank, trading at Rs 72.70, paid a dividend of Rs 4 per share in FY06. The bank has posted Rs 624.41 crore net profit in the first nine months of FY07 against a net profit of Rs 706.12 crore in FY06. |
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| Wyeth paid a dividend of Rs 25 per share on a net profit of Rs 67.72 crore in FY06, and is trading at Rs 455.30 on the BSE. |
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| The company posted Rs 79.11 crore net profit in the nine months ended December 2006. |
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| Chambal Fertilizers, Mangalore Chemicals and GNFC from the fertilizers sector, Menon Pistons, Ucal Fuel Systems and Samkrg Pistons from auto ancillaries, Bhuwalka Steel and Rathi Udyog from steel, B N Rathi Securities, Wall Street Finance and Indo Asian Finance from the financial sector offer dividend yield of over 4.5. |
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| Power generation company, Neyveli Lignite offers a dividend yield of 4 per cent. The company had paid a dividend of Rs 2 per share in FY06, and is trading at Rs 50.40 on BSE. |
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| Tube Investments, currently trading at Rs 53.85, offered a dividend yield of 8.7 per cent or Rs 4.70 per share in FY06. |
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Life can only be understood backwards—but it must be lived forwards
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Vivek Sukhani
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Joined: 23/Jul/2006
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Posted: 04/Apr/2007 at 10:07am |
Kulman, I beleive there was a special component in Tube's dividend.I never looked at Neyveli like that..... I am quite quite surprised to see ONGC, Shipping Corporation and GE Shipping being not in the list. Hawkins I was tracking from it was 116 but its prifit trajectory is so fluctuating, that I avoided it.Look at Ultramarine.Pays 3 rupees for 43..... wonderful management....Kabra Extrision technik is also a decent stock to mention. Cosmo Films' Chairman, Mr. Ashok Jaipuria, draws a huge salary which doesnt siot my comfort level. Also, Cosmo expands a bit too much, too very much dependent on crude prices...but the management otherwise is reliable, IFC has also invested in it big I suppose.Play BASF and castrol for dividend yield....Foseco was also anotable omission.
Regards,
Vivek
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basant
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Location: India
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Posts: 18403
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Posted: 04/Apr/2007 at 10:23am |
Sugar companies could skip dividend so we need to keep that under check before pulling out our calculators. Also we need to understand that dividend only protects the downside never guarantess an upside - the fact that stocks also go ex-dividend is never mentioned in these articles basically they are a psychological comfort.
(Baba) Ramdeo in his pearl of wisdom has been advocating buying HPCL/BPCL on the basis of dividend and book value but the stocks have gone nowhere for 4 years now. Yes they have protected the downside but that is not what we are in the markets for.
A very good friend of mine has a stake in Andhra Sugars basically this is not an exclusive sugar company and he had sent me his reason for being bullish on this one. Would put it up after conforming from him!!!
When a stock with a 4% dividend yield goes down 25% you still lose 21% - Philips Fisher
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Vivek Sukhani
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Posted: 04/Apr/2007 at 10:31am |
Exactly, although Dogs of the Dow have yielded a market superior return in last 7 out of 10 years on the dow, we have to be choosy with dividend stocks as well.
Increasing EPS, Increasing yield will beat the bench mark in most of the cases. Constant EPS and increasing yield, will take you nowhere. Decreasing EPS, increasing yiled, will become a dud un no time.
Regards
vivek
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basant
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Posted: 16/Apr/2007 at 2:06am |
While the markets love dividends it would be interesting to mention that Bharti has NEVER declared a dividend!!!
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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