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Thursday, March 06, 2014
Bazaar buzz: Pick & choose your high dividend stocks
Mar 03, 2014, Mumbai: As the annual dividend season kicks in from April 1, high dividend yield stocks are in focus, with many of them selling at deep discounts. So, the buzz in the bazaar this time around is that several companies may find it difficult to match last year’s bonanza to shareholders.
This is good enough reason for analysts to suggest that you must now pick and choose every high dividend yield stock in which you sink your cash.
Data supplied by corporate database Capitaline place state-owned companies and those from the financial services, infrastructure and capital goods sectors among the top high dividend yield stocks. Investors usually consider such companies safe, while appreciating the management’s gesture of sharing profits with investors.
However, it is unlikely that high dividend yield firms are going to maintain their payout based on their last year’s track record at a time when NPAs are rising.
Capitaline date places the top 10 high dividend yielding stocks as REI Agro, Akzo Nobel, Shree Ganesh Jewellery, Accelya Kale, Indiabulls Housing Finance, Andhra Bank, Syndicate Bank, Corporation Bank, Union Bank and Allahabad Bank.
Paras Bothra, equity researcher at a local stock broking outfit, said, “A month from now, companies will start announcing annual dividends. But it is difficult to say how many of them will maintain the same dividend as last year. If they are able to, then the dividend yield will go up to 7-8 per cent, and the stock prices will shoot up.”
Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price.
Some companies like Corporation Bank, NTPC, Oil India, Bank of Maharashtra, Coal India and United Bank that are among the top 25 high dividend yield stocks that are available very cheap at prevailing market prices that are almost half their 52-week highs.
“In case of Corporation Bank, the asset quality is not going to deteriorate extensively. It is indeed a good pick while United Bank is facing huge NPA issues and may not be the right choice,” Bothra said.
NTPC’s share price has fallen to a seven-year low due to Central Electricity Regulatory Commission’s (CERC) order last month and problems being faced by the power sector.
NTPC is seen as a big loser after the CERC order of February 21 changed the incentives and the system of calculating tariffs.
“There is a huge difference in NTPC’s power production capacity between now and 10 years ago, but incremental growth is being eaten by capex, Bothra said.
“Stray cases like Corporation Bank will not scale down dividends, but others like United Bank will cut theirs,” Bothra said, adding “This year it will be a pick and choose for the high dividend yield stocks.”
Out of the top 25 high yield stocks, 60 per cent belonged to the public sector and the rest private sector.
One should also look at high dividend yield stocks in the S&P BSE Sensex and NSE Nifty pack, where dividends are declared without fail and there is a fair chance of special dividend or interim dividend announcements making investments look sweeter for the shareholders.
As per HDFC Securities data, Coal India, NTPC, Hindustan Unilever, Oil & Natural Gas Corporation, Hero MotoCorp, GAIL, SBI, Tata Steel and Bajaj Auto are the top dividend yield stocks in the Sensex pack.
In the Nifty pack, the top high dividend yield stocks are Coal India, NMDC, NTPC, Punjab National Bank, Bank of Baroda, Cairn India, Hindustan Unilever, ONGC, BHEL and Hero Motocorp.