Indian Market Review from Keynote Capitals: Low Dividend Yield Stocks
Both in bull and bear markets, a large number of investors seek out high dividend yield stocks, as the latter apparently provide returns similar to that on say fixed deposits with banks. Most investors view high dividend yield stocks as safe bets. However, investors tend to overlook the fact that the primary objective of equity investments is capital gains, rather than fixed returns.
We conducted a study in order to understand the market’s perception of high dividend yield and low dividend yield stocks and arrived at the following conclusions.
Summary of findings
- Aggregate earnings growth: Remarkably, low yield stocks reported a higher average earnings growth y-o-y (65% in FY07 and 37.5% in FY08) vis-?-vis high yield stocks (30.5% in FY07 and 14.9% in FY08).
- Aggregate market cap changes: High yield stocks (down 32.5%) however outperformed low yield stocks (down 32.9%) during the period under consideration.
- Dividend payout: High yield stocks reported higher payout of 35.4%, while the payout of low yield stocks was far lower at 11.8%.
- Sector prospects: Stocks from emerging and high growth sectors offered low yield, while stocks from sectors with low to moderate growth offered high yield.
- Average yield: High yield stocks had an average yield of 4.3% and low yield stocks, 0.5%
- Safe bets? If profit growth in high yield stocks is indeed lagging that in low yield stocks, can the former really be considered “safe bets”? We believe slower profit growth may indicate a lower probability of dividend percentage and payout being maintained going forward, failing which the yield could decline, making these stocks “less attractive” than they appear currently.
Conclusion
We therefore conclude that high yield stocks may not necessarily be safe bets after all, especially as they most probably belong to low-to-moderate growth companies, while it is the low yield stocks that could actually have a higher likelihood of giving better returns, by virtue of belonging to moderate-to-high growth sectors.
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| Latest Indian Stock Market Reports |
Indian stock market daily morning report (March 11, 2010, Thursday)
Indian markets corrected midway through the trading session yesterday on profit taking in technology stocks. However, a recovery in oil and gas and real estate stocks helped the Sensex to close marginally up. Market breadth was weak at around 0.7x. While FIIs bought equities worth Rs3.6bn and domestic institutions sold equities of Rs3.7bn. Asian markets are trading mixed today, with the Nikkei up and the Hang Seng down. SGX Nifty is trading with a moderate decline.
Indian stock market and companies daily report (March 11, 2010, Thursday)
The benchmark indices posted small gains as European markets reversed early losses and US index futures rose. The market breadth was weak after a strong start. Auto stocks edged higher on fresh buying. Banking shares were mixed. Telecom pivotals saw a divergent trend, but IT stocks declined on profit taking following recent gains triggered by upbeat US jobs data. The Sensex and the Nifty closed in the green, with gains of 0.3% each. The BSE Mid-cap and Smallcap indices underperformed the benchmark indices and closed with losses of 0.1% and 0.2%, respectively. Among the front-liners, Hero Honda, ACC, RIL, JP Associates and HDFC were up by 1-3%, while NTPC, Maruti Suzuki, Bharti Airtel, Infosys and Sun Pharma were down by 1%. In the Mid-Cap segment, M&M Financial Services, Asian Star, Amtek Auto, BF Utilities and Indusind Bank were up by 5-8%, while Balrampur Chini, Triveni Engineering, Bajaj Hindusthan, Shree Renuka Sugars and Nagarjuna Fertilizers were down by 4-8%.
Indian stock market daily morning report (March 10, 2010, Wednesday)
Indian markets declined yesterday due to the weak global markets. The Sensex closed 50 points down as the investors sold metals, PSU and real estate stocks. However, IT stocks provided some support. Market breadth was weak at around 0.6x. Asian markets are moderately down today due to lack of global triggers and flat close of the US markets
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| Indian Stocks Recommendations |
Godrej Properties IPO review and analysis by Angel Broking, 9 December 2009
Godrej Properties Limited (GPL) intends to develop its projects through joint development agreements with land owners. Under this asset-light model, GPL will enter into revenue, profit or area-sharing agreements with land owners, instead of an outright purchase of the land. This model avoids direct land dealings for GPL and the locking-up of extensive capital in land. Around 80% of GPL's existing land bank will be executed through joint developments with partners. The Godrej brand name has been associated with quality and strong corporate governance. Both of its existing listed entities, Godrej Consumer Products and Godrej Industries have given CAGR Returns of 48% and 77%, respectively, to investors since 2001. We believe that GPL could leverage its parentage brand (with respect to access to the land at Vikhroli and a strong customer preference towards it), assuring a timely delivery of execution. More than 50% of GPL's existing land bank is exposed towards township projects and in one location (Ahmedabad), which will be executed over the next ten years. Any delay in this execution or a fall in property prices in Ahmedabad will impact our NAV estimates, as 50% of our NAV is derived from this project.
JSW Energy Ltd IPO review and analysis by Nirmal Bang, 8 December 2009
JSW Energy Ltd. (JSWEL) is a power project development company, which is developing, and will operate and maintain, power projects in India. The company has two thermal power projects under operation, with a combined installed capacity of 860 MW. JSWEL is a part of the JSW Group, a leading business group in India. JSW Group has a presence in high growth sector like Steel, Energy, Aluminium, Cement, Infrastructure and Logistics. Post IPO holding of Promoter and Promoter Group would be 78.12%
JSW Energy IPO review and analysis by Angel Broking, 7 December 2009
JSW Energy (JSWEL) currently has operational capacity of 995MW and is in the process of executing projects with capacity of 2,655MW. In addition, the company has 7,740MW power generation projects at an early stage of development. A major portion (2,145MW) of JSWEL’s upcoming capacities is expected to be operational by FY2011E thereby providing near-term visibility. Out of the plants under construction, the company expects to commission 570MW by end FY2010E, while another 1,575MW is expected to get operational in FY2011E. Thus, a robust portfolio and near-term Revenue visibility is a major positive for the company.
| | Indian News |
Indian Union Budget review 2010-2011, 6 March 2010
Indian Auto Sector Update, 6 March 2010
Indian Economic Survey 2010, 25 February 2010
Indian railway budget 2010 analysis, 24 February 2010
Indian auto sector monthly update (January 2010), 5 February 2010
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