Stocks with a high dividend yield fills the conservative investor with quiet confidence that his investment is relatively secure. The high dividend yield usually acts as a floor to a free fall of the stock price. In addition, if the stock has good growth prospects then that is really the icing on the cake because apart from the high dividend payout, one can also expect capital appreciation.
An investor has to be careful to pick stocks which have a consistent dividend track record. Also the investor has to ensure that the high dividend pay-out is not on account of some one-time event e.g. a centenary function etc. Some examples of this one-time high dividend payout companies are Engineers India (1006%) & Hero Honda (5,500%) in 2010.
We looked at one set of high dividend yield stocks here (5 High Dividend Yield Stocks For Your Portfolio). Let’s take a look at the second lot here.
(i) HCL Infosystems (Dividend Yield 6.88%)
HCL Info has a consistent dividend track record. HCL Info declared 400% in the years ended June 06 to June 08. The dividend was reduced to 325% in June 2009 and raised to 375% in June 2010. At the CMP of about Rs. 108, HCL Info offers a very attractive dividend yield of 6.88%.
HCL Info is basically into trading of computer products and enjoys low margins in its business. So, HCL Info is unlikely to see any spectacular growth in the coming future. However, at the same time, there is unlikely to be any steep drop in the business. HCL Info‘s valuations are also not very challenging. HCL Info is quoting at a PE of 9.52 on the basis of the FY 2010 EPS of Rs. 11.45.
HCL Infosystems Ltd announced in January 2011 that it has been awarded a project worth Rs. 40 crores by Department of Higher Education, Government of Himachal Pradesh for setting up fully integrated Information and Communication Technology labs and multimedia classrooms in 628 Government Senior Secondary Schools of Himachal Pradesh.
HCL Infosystems Ltd also announced that it had a tie-up with Punjab & Sind Bank for provision of smart card-based technology solutions for financial inclusion, besides engaging and managing business correspondents deployed in unbanked villages.
So, HCL Info does look like a safe bet for the conservative investor.
(ii) Sree Sakthi Paper Mills (Dividend Yield: 6.86%)
We covered Sakthi Paper in more detail here (Sree Sakthi Paper Mills: High Dividend Yield & Growth):
Sree Sakthi Paper Mills has a consistent dividend paying track record. It paid 5% in March 2006, 10% in March 2007, 15% in March 2008 & 2009 and 18% in March 2010. For FY 2011, Sree Sakthi Paper Mills has declared an interim dividend of 8% (it was 9% last year).
Sree Sakthi Paper Mills appears to be doing well if one goes by the H1 2011 results. Sree Sakthi Paper Mills‘ EPS for H1 2011 was Rs. 2.13 as against the H1 2010 EPS of Rs. 1.38 marking a growth of 54%. Sree Sakthi Paper Mills‘ EPS for FY 2009-10 was Rs. 2.83. Assuming Sree Sakthi Paper Mills‘ EPS for H2 2011 will grow at the same rate at which H2 2010 grew, the EPS for FY 2010-11 should be in the range of Rs. 4.36 or thereabouts.
(iii) PAE Ltd (Dividend Yield: 5.47%)
PAE Ltd was formerly known as Premier Auto Electric. PAE is enaged in supplying spare parts products for the automonile Industry. PAE’s business is divided into six verticals being Marketing of Auto Batteries, Auto Parts, Inverter, Inverter Batteries, Solar Panels, UPS and its batteries. PAE is also engaged in the marketing and distribution of inverters and inverter batteries which are sold under the trade name “PowerZen”. PAE is also engaged in designing, manufacturing, marketing and installation of solar products through its subsidiary PAE Renewable Pvt Ltd.
PAE has a consistent track record of dividends. It paid 10% in March 2007, 15% in March 2008 & March 2009 and 18.50% in March 2010. At that dividend payout, the yield works out to an attractive 5.47% at the CMP of Rs. 33.
(iv) Chennai Petro (Dividend Yield: 5.30%)
Chennai Petro has quite a reasonable track record of paying dividend though it skipped a payout in March 2009. In March 2010, Chennai Petro paid a dividend of 120%. At the CMP of Rs. 224, the dividend yield works out to 5.30%.
The best thing about Chennai Petroleum is that apart from the recent liberalisation in the petroleum pricing regime announced by the Government which will benefit Chennai Petroleum, Chennai Petroleum has been on making huge investments in several projects. Chennai Petroleum has completed a 17.5 MW of wind power, 20 MW gas-based power plant, seawater desalination project and revamp of catalytic reforming unit for converting naphtha into petrol. Chennai Petroleum has also implemented a de-bottlenecking project to increase its refining capacity by 10% to 10.5 MTPA. Chennai Petroleum has also undertaken an up-gradation project to introduce Euro III/IV grade auto fuels. Chennai Petroleum has also set up a single point mooring (SPM) facility integrated with crude oil terminal for its Manali Refinery. This will enable Chennai Petroleum to procure crude imports through very large crude carriers. The end result is that Chennai Petroleum will optimise its costs, improve operations and become more profitable.
(v) Kabra Extrusion Technik (Dividend Yield: 5.30%)
Kabra Extrusion Technik is a leader in extrusion machinery used for producing plastic pipes and packaging films. Kabra Extrusion Technik recently launched a new product to manufacture drip irrigation tube lines in collaboration with Drip Research Technology Services of the US. Kabra Extrusion Technik is also planning to launch new high-speed multi-layer blown films plants by the end of FYI1.
Kabra Extrusion Technik has embarked on an investment plan of Rs. 85 crore, which will more than double its gross block by FY12.
According to the Economic Times which ranked Kabra Extrusion Technik as one of the fastest growing companies, India’s plastic consumption is likely to double within the next six years from 8 million tonne in 2009. Industry experts believe that investment of nearly $10 billion would be required in the plastic processing industry to create the necessary capacity. This investment spree in the plastic processing industry will be a key growth driver for Kabra Extrusion Technik said ET.
Kabra Extrusion Technik has excellent financials. It is virtually debt-free with a debt: equity ratio of only 0.11. Kabra Extrusion Technik‘s 3 year CAGR sales have is 15.46% while its 3 year CAGR profit is 43.65%. Kabra Extrusion Technik‘s Return on Equity is 26.84% At the CMP of Rs. 65 and the EPS of Rs. 13.28 (after bonus adjustment) for FY 2009-10, the PE is only 4.89 which is very reasonable for a company with such good prospects.
Kabra Extrusion Technik has a regular dividend paying track record. It paid 60% in FY 2008 & FY 2009 and 70% in FY 2010. At that dividend payout and the CMP of Rs. 65, the dividend yield works out to 5.38%.
(vi) Mold-Tek Packaging Ltd (Dividend Yield: 5.18%):
Mold-Tek Packaging, engaged in providing packaging solutions to the FMCG Industry, has paid 20% in FY 2007-08 & FY 2008-09 and 30% in FY 2009-10. At the CMP of about Rs. 59, the dividend yield works out to about 5.18%. At the TTM EPS of about Rs. 11, the PE of Mold-Tek Packaging is about 5.38 which is not very challenging.
(To be continued)