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Falling markets give little room for capital appreciation. However, this doesn't imply that investors cannot benefit during such a period. They can look at investing in companies that hold promise of rewarding them through dividends. In such a case, choosing the right company, with a good track record of growth, sound financials and history of dividend payment, becomes critical.
ET Intelligence Group has analysed companies and chose top 10 high dividend-yielding stocks to invest in. For this exercise, we have taken companies that have a market cap of above Rs 100 crore and shortlisted the ones having highest dividend yield along with promising growth record and sound financials.
We considered the dividend paid by companies for the year ended FY10 and stock price as of January 31, 2010, to find out dividend yield. However, companies such as Hero Honda and Engineers India were excluded as they had a high dividend yield due to a one-time special dividend. Again, companies like DCM Shriram Industries, Birla Cotsyn, Birla Power Solutions and JK Lakshmi Cement were not included due to uncertainty over dividend payment in view of their poor performance for the past three quarters.
Chennai Petroleum Corporation (CPCL), a subsidiary of Indian Oil, is engaged in refining of petroleum with a dominant presence in South India. It has had a long track record of paying healthy dividends. Except for FY09, when it suffered losses due to volatile crude oil prices, the company has paid dividends since its incorporation. For FY10, its dividend stood at Rs 12 per share, which translates in yield of 5.7% at its current market price of Rs 210. In view of the decline in its profits during the first nine months of FY11, the company may not be able to maintain its dividend run-rate of the last year. However, considering its dividend payout of 33% during the past five dividend-paying years, the company is expected to pay dividend of Rs 8 per share, resulting in a yield of 3.8%. Considering the company's low valuations and improving outlook for the refining industry, the scrip could also see some capital appreciation in the coming quarters.
CMP : Rs 210, down by 11% y-o-y
Net sales : Rs 28,273 crore, up by 15.5% y-o-y
Net profit: Rs 136 crore, down by 85% y-o-y
Reserves and Surplus : Rs 3,313 crore
Dividend Yield: 5.7%
The company is mainly into distribution business of IT products and operates on lower margins of 2-3%. However, it expects to witness a margin improvement during the second half of its fiscal year ending June due to a faster growth in the higher margin businesses like systems integration. The company's telecom distribution business continues to be a laggard since the past few quarters. However, a recent Rs 250 crore automated billing deal from BSNL takes its order backlog to Rs 4,250 crore. Though HCL has been sustaining a huge order book size since June 2010 quarter, not much has got reflected in its topline during the subsequent quarters. The company expects system integration, office automation and digital entertainment businesses to drive growth in future. In the past five fiscals, the company has been consistently maintaining a healthy dividend payout of more than 300%. Considering this, it is expected to give at least 300% dividend this year as well.
CMP: Rs 108, down by 20% y-o-y
Net sales: Rs 11,833 crore, down by 1.9% y-o-y
Net profit : Rs 253.5 crore, down by 1.8% y-o-y
Reserves and Surplus : Rs 1,861 crore
Dividend Yield: 7.2%
Hinduja Global is a solutions provider to the outsourcing industry. The company's business witnessed a turnaround during the September 2010 quarter. Its topline, which was more or less stagnant till the June 2010 quarter, surged 17% in the September 2010 quarter on account of the consolidation of its latest acquisition — Careline Services. The company collects 75% of its revenue in the US dollars, 13% in pounds and the balance 12% in rupees. Its domestic revenues continue to be impacted due to pricing pressure while the rupee appreciation has adversely affected its revenues from international business. It follows a strategy of shifting facilities to low-cost centres to improve profitability. Margins are likely to improve in the coming quarters as new centres at various cities have started to ramp up and the existing centres have yielded new businesses. The management expects a robust demand momentum in the coming quarters. With new facilities becoming operational, the company is likely to fare well. One can expect the company to pay dividend at the rate of 100% of its equity.
CMP : Rs 345, down by 24% y-o-y
Net sales : Rs 497 crore, up by 3.5% y-o-y
Net profit: Rs 74 crore, down by 9.6% y-o-y
Reserves and Surplus: Rs 593.1 crore
Dividend Yield: 5.7%
Kothari Products is a diversified trading company engaged in the import and export of various products, commodities, minerals, metals and petroleum products. It is also involved in real estate development. Kothari is a zero-debt cash-rich company paying dividends at an average rate of 100% of the equity. Its net sales for the first half of FY11 increased four fold. However, its profit during the period halved over the previous year. Considering its dividend history and reserves, the likelihood of the company maintaining its dividend rate is high.
CMP: Rs 396, down by 6.8% y-o-y
Net sales: Rs 532 crore, up by 439% y-o-y
Net profit : Rs 54 crore, up by 91% y-o-y
Reserves and Surplus : Rs 546 crore
Dividend Yield: 5%
LKP Finance is a non-banking finance company offering wide range of services from equity broking to fixed income securities, commodities and merchant banking. The company has started paying dividends from FY08. It has paid around Rs 9 crore each as dividends in the past two years — at a time when most companies refrained from paying dividends. Considering LKP's good performance for the first nine months of FY11, it is likely to pay dividends for this fiscal year. The company's stock has fallen by almost 28% in the past three months. It may be a good opportunity to invest in the stock, but an advice of caution is warranted here. LKP derives its income mainly from capital market businesses. Hence, a 10% fall in benchmark indices in the past three months and the current negative sentiment could affect the company's profitability.
CMP : Rs 131, up by 11.9% y-o-y
Net sales: Rs 48.5 crore
Net profit: Rs 34.5 crore, against loss in previous year
Reserves and Surplus: Rs 125.5 crore
Dividend Yield : 5.3%
Mac Charles India
Bangalore-based Mac Charles India is a profitable hospitality company that pays consistent dividends. Despite the capital-intensive nature of hotels business and a small-size hotel, the company, , which is known for Le Meridian brand, has maintained a healthy net profit margin of 22.6% during the 12 months ended September 2010. In the past five fiscals, the company maintained an average pay-out ratio of over 22%. As the hotels industry regains momentum on the back of a rise in business travel, Mac Charles would benefit from its presence in Bangalore. It is expected to end the fiscal with a net profit of more than Rs 30 crore. With almost no debt to service, the company is likely to maintain its dividend rate at 100% of the equity.
CMP : Rs 212, up by 0.95% y-o-y
Net sales: Rs 45.6 crore, up by 16% y-o-y
Net profit: Rs 12.8 crore, up by 44% y-o-y
Reserves and Surplus: Rs 191 crore
Dividend Yield: 5.1%
Source: Economic Times
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September 7, 2011