Hi, everyone
I want to know that it is right time to add high dividend yield stocks in our portfolio.
How are NMDC, Nalco, Vedanta, Hindalco ?
Disclaimer: Not invested
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I used this strategy in 2009 crash and was not happy with what I achieved. I would stick with cash generating business with clean balance sheet, high payout ratio and export oriented.
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I personally tend to agree with Madhu; trying to resist the temptation to gather div. yield stocks.
In any case I might look at reasonably managed companies - certainly not companies like Vedanta & Hindalco which have somehow created lot of wealth but none for minority investors.
The issue with dividend yield stocks are it is mostly PSUs or commodity players. Most good business can’t trade at high dividend yield.Simply because if I know a good business like CRISIL or Page are paying good dividend and there is consistency in profits, I would like to own such businesses. Mr Market will pay more for those businesses like MPS, Accelya Kale or CARE which had traded as a high dividend yield stocks sometime back.
Thanks to all for precious guide.
Mr porinju also started taking interest in Vedanta and NALCO at this rate
They are available at 50 to 75% of their book value
HI GUYS, pls stay away from PSU stocks. No point in taking risk for 8-10% return on ur money.U can get 12-13 % from deposits with NBFC"s.
Invest in business which are expected to grow @ CAGR of 24% for next few years.
Amit
I think the call is highly personal. If one is in capital building stage, it doesn’t make sense to hide in div. yield stocks. If one has already built a nest egg larger than required and is feeling uneasy, div. yielding stocks might be the right choice. Most people would NOT have built a nest egg larger than required.
At the cost of being repetitive, let me elaborate since fear does terrible things to our rationality. I see 2 main risks for all the above stocks:
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Opportunity cost - “Time is the friend of the good business, and enemy of the mediocre business”.
I think the main reason people might be looking to hide in div. yield stocks right now is to get less damage in a bear market and convert the capital to high growth stocks when the dust settles. But cash (read as cash/bank FD) is the best place to hide for such a purpose (I am not advising to liquidate one’s portfolio). It is certainly true that high yielding stocks won’t fall as much as small/mid cap or even some large cap stocks in a bear market. But that is just relative - in absolute terms 20-30% falls are nothing. And stocks can quote at less than cash on books (which should also be discounted by 16% for DDT). Though only for a short time, but exactly when your 30% compounding machines are available at 15-20 PE. Even if the yield is 2-3% more than FD rate, that gives 10% over a 3 year period. And like I said before, one incurs a huge opportunity cost in holding div. yielding stocks for a long time. -
Cyclicality - Most of the commodity stocks can keep going down like in a bottomless pit. Porinju is smart and might get it right, but it is VERY difficult for an average valuepickr to make money from such stocks even once in a row - because you need to get 2 calls right - buy and sell. Even if Porinju is buying right and sells right, we don’t know when he will sell. Btw, NALCO is 25% down since he tweeted about it on Aug 10. And unlike most of the secular growth stories discussed here, 5-10x moves on either side over a cycle are common for cyclicals. We don’t know whether Porinju is averaging down, or whether we have nerves like him. No one (including in the China’s finance ministry or LME) knows when we reach a bottom. With the China export engine coming to a stop, there is no bottom in sight - I am not saying this time is different, I am just saying that this time things could be amplified further.
For PSU stocks, there is a third risk, namely govt intervention. Disinvestment might keep prices at bay. From the div. yield perspective, its nice that govt. is arm-twisting companies into paying high div. Further, NALCO and NMDC have 4.6kcr and 18kcr of cash. But all this could backfire due to the law of unintended consequences if the co. decides to start using its cash rather than pay dividend and ends up di-worsifying.
For Vedanta, I don’t see any other risks (mainly because I never thought of investing in it), but I see one thing for CERTAIN. They WILL fleece minority investors. I am saying this not because I have a crystal ball, but because I have looked at the past track record.
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I think its not necessarily that dividend yield stocks cannot build capital. Obviously you cant compare them to the high growth companies but to people with a preference for lower volatility a carefully selected portfolio with decent dividend yield can give good income and also capital appreciation in future. Few things which one should consider while selecting such a portfolio is only include companies where:
a) Dividend payments can be sustained in the long term (think non cyclical business)
b) Scope for dividend increases in the future and hence avoiding companies with unsustainable payout ratios
Have now more clarity.
I simply wanted to invest some part of my new investment in safer stocks and this time, I believe, is right time
Dividend is basically a safe heaven, but also we need to know how will the company make profits in order to make the dividends also is therr any exapnsion plan in place , in case there is then the money would be diverted there.
Also its better to check the past history of dividend payouts of the pat few years.
overlal as explained above by fellow boardsrs, in case one is worried and want to bve in a relatively safe haven , then FD would be a better place or start an SIP in the companies that you have an opinion that will grow
IMHO The question whether high dividend yield stocks should be bought or not is a topic for another discussion. Its also a matter of personal choice. Personally, my goal over the years is to create a portfolio that gives me dividend yields which ensure I have enough income for retirement. Here is my contribution to the list:
JB Chemicals is one stock with high dividend yields. Profits are increasing - though not at a break neck speed. Screener link:
Hi Janit,
In case of JB Chemicals, for FY 2015 there is component of a special dividend of Rs 10 and regular dividend of Rs 4 making total Rs 14 per share.
In that respect, normalized dividend yield (excludind the special dividend) is more like 1.50% which is fine but not very high. I hope you are factoring this and not getting led by dividend yield number of 5%+ on screener since that will not be recurring.
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Yes, you are right. It doesnt fit perfectly in the high yield stock category. It was a nice opportunistic bet for me though.
I also used this strategy around 2009. I bought HCL tech around 100 Rs when it was offering a good dividend yield. This was few months before the axon acquisition was announced. It worked out well for me.
I would have told you to go for Hin Zinc…but It has already moved up as well as given a one time special dividend…my next best bet would be NMDC…but watch out for the Iron ore prices…
I think another area worth looking at is the sector that the company comes from…if the co is from IT, Pharma, FMCG etc then I feel it is relatively better. Betting on NMDC is essentially a bet on the Iron ore prices…Iron ore prices after touching low of 39$ have hovered around 55$. I do not possess the skills to take a call on iron ore prices going forward. However if prices stay around same level and NMDC makes a new 52 week low you can take a look at it. Also in the P/E do not just look at the P. The Earnings could also slide substantially YOY as the iron ore prices are donw compared to last year. So this P/E of 9 is actually an illusion and the P/E could get stretched following the Q results.
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