While the market may have belied the hopes of investors looking for capital appreciation, the sharp downturn in prices has raised the dividend yield for many companies. With the annual results fast approaching, dividend income from companies may prove to be a source of steady income for investors.
Consider the case of Blue Star, for instance. The company has been paying dividend consistently for the last three years. With the dividend declared last year at Rs 5 per share and the current market price at Rs 30, the dividend yield works out to as high as 16.5 per cent. Even if the company pays Rs 3.5 as dividend this year, the dividend yield still stands at 11.5 per cent, which is tax-free.
This is not all. There are many others like Kirloskar Oil, VIP Industries, GNFC, Tat Finance, Wellwin Industries and Bank of Punjab, which have a consistent dividend-paying record over the years and an attractive dividend yield of 10 to 13 per cent based on their current prices. In some cases like Pentamedia, Paper products and Avanti Feeds, there has also been a gradual increase in their dividend pay-out over the years.
Of all the 4,000 plus companies listed on the BSE, there are around 775 profit-making firms, which have a consistent dividend paying track record for the last three years. While some companies have a very low dividend yield, others run the risk of not being able to repeat their past performance. In a detailed study, ET tried to identify companies which may provide attractive dividend yields, assuming they maintain their past dividend paying record. Taking a cut-off for the dividend yield at 10 per cent or more, based on the dividend paid last year, and by including only those companies with a positive net profit growth in the trailing 12-month period, compared to the previous year, the list was pruned to just 80.
Since liquidity is of paramount importance, only those companies were selected which had an average daily volume of atleast 500 shares and market cap above Rs 10 crores. In many cases, the volumes have dried up in the current market scenario.
The final list had around 20 companies. Ashok Leyland Finance is at the top with a dividend yield of 16.7 per cent, followed by Blue Star with 16.5 per cent and Garware Wall Ropes with 16.1 per cent. It is the tax-free nature of dividends which make share attractive, compared with the falling interest rates on other fixed income instruments. Also, with the finance minister reducing the tax on the dividend paid out by companies from 20 to 10 per cent in the current Budget, it is possible that some corporates may even increase their dividend pay-out.
The only risk involved in dividend pay-out on shares is that of a capital loss. This is because there is a time lag between the dividend declaration date and the actual payment date, which could be as much as three months. Capital could thus erode in the intervening period. Also, in some cases, the volumes are quite low, due to which there remains a risk of not being able to exit.
|Company||FY '00 Div (%)||FY '99 Div (%)||FY '98 Div (%)||TTM NP Chg (%)||Latest Price (Rs)||Div Yield (%)|
|Ashok Leyland Fin||40||40||50||39||24.0||16.7|
|City Union Bank||25||20||25||7||22.2||11.3|
|Tata Sponge Iron||20||10||18||100||18.0||11.1|
|Bajaj Auto Fin||30||25||2||4||27.8||10.8|
|Bank of Punjab||15||14||14||46||14.6||10.3|
TTM - Trailing 12 months, NP-Net Profits