How Much High Dividend Yield of Stocks Matters in Stock Selection?

Introduction

This article contains details about 4 high dividend yield stocks with positive returns over last 12 Months. Many a times retail investors select high dividend yield stocks without analyzing other important parameters like historical returns, revenue growth, profit growth and also the future earnings visibility of the business. Thus, investors should focus on quality of stocks rather than blindly following dividend yields.

4 High Dividend Yield Stocks

What is Dividend Yield?

• Companies distribute a portion of their profits as dividends, while keeping retained earnings aside to reinvest in the business. Dividends are paid out to the shareholders of a company.
• Dividend yield is the financial ratio that measures ratio the annual cash dividends paid out to shareholders relative to the current share price of the company. It measures the quantum of earnings in the form of total dividends that investors make by investing in that company.
• The formula for computing the dividend yield is :
  • Dividend Yield = (Cash Dividend per share / Share Price) * 100
• Example : Suppose a company with a share price of Rs.100 declares a dividend of Rs.10 per share. In that case, the dividend yield of the stock will be (10/100)*100 = 10%. 
• Many a times we come across dividend declared of 100%, 300%, even 1000% etc. However, this dividend is calculated on the face value of the company which the company declares during its Initial Public Offer (IPO).
• In short, dividend yield measures the amount of cash flow you’re getting back for each rupee you invest in an equity of the company.

High Dividend Yield Stocks with Negative 1-year Return

• From the above table, we can see the top 4 high dividend yield stocks with negative returns over last 1 year.
• In these stocks, a shareholder seems to get higher comparatively higher dividends. However, these stocks share prices are continuously falling over last 12 months.
• There was a great deterioration in the market capitalization of these stocks. So, we can say shareholders are getting the higher dividends with much greater capital erosion.
• After referring such negative returns over last 12 months, how much high dividend yield of stocks matters in stock selection?

Thus, we should go for stocks paying higher dividends and also giving positive returns over last 12 months. Lets see which are these stocks.

High Dividend Yield Stocks with Positive 1-year Return

Procter & Gamble Health Ltd

• The company is engaged in manufacturing and marketing of pharmaceuticals, bulk drugs, fine chemicals and pigments.
• Market Capitalization = Rs.7,183 Cr, Small Cap Company.
• P&G Health basically has a consumption driven business. So the company is having a good earnings visibility in the future also.

Esab India

• The company is engaged in the business of fabrication technology. Esab India is a world leader in the production of welding and cutting equipment and consumables. 
• Market Capitalization = Rs.1,917 Cr, Small Cap Company.
• In spite of being related to the manufacturing industry, the company has given almost 38% return over last 1 year.
• In terms of performance, 3-years sales growth is 14%, while 3-years profit growth is 24%.
• Current Price to earnings ratio is 30. Debt to Equity ratio is 0, debt-free company. Promoter holding is also high 73% which is also a positive sign.

Hindustan Petroleum Corporation Ltd (HPCL)

• The company is engaged, primarily in the business of refining of crude oil and marketing of petroleum products.
• Market Capitalization = Rs.44,221 Cr, Large Cap Company.
• HPCL is getting the advantage of divestment program. The positive cascading effect of government’s divestment target is going to support major oil marketing companies in India – HPCL, BPCL and IOC .
• PE ratio is 8.25, in spite of great return on equity (24%) and return on capital employed (21%). So we can say that the stock is currently trading at discounted valuation.

Rural Electrification Corporation Limited (REC)

• REC is engaged in financial services and activities-other Credit granting. The Company provides finance to power sector. It finances and promotes rural electrification projects all over the country.
• It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects as are sponsored by them
• Market Capitalization = Rs.28,231 Cr, Large Cap Company.
• The company is capable of generating consistent cash flow on account of government support. It is one of the PSU stocks in which a good positivity is seen in recent months.

Q2 FY20 Results Highlights of Aditya Birla Capital Ltd

Introduction

In this article, we are going to do Aditya Birla Capital Ltd (ABCL) stock analysis. Key business segments, Q2 FY20 results, shareholding pattern and the current valuation of the company are also analysed in detail.

Aditya Birla Capital Ltd – Stock Analysis

Company Profile

• Aditya Birla Capital Limited (ABCL) is a part of Aditya Birla Group.
• ABCL is the holding company for the financial services businesses of the Aditya Birla Group. (It was formerly known as Aditya Birla Financial Services Limited)
• The company is engaged across life insurance, asset management, NBFC, infrastructure project and structured finance, private equity, broking, wealth management and distribution, online money management, and general insurance advisory services. 

Key Business Segments

• Aditya Birla Capital Limited (ABCL) is one of the largest financial services players in India with presence across protection, investment, Financing and Advising business.
• The key business verticals of ABCL are :
• Lending :
  • NBFC : Aditya Birla Finance Ltd
  • Housing Finance : Aditya Birla Housing Finance Ltd
• Insurance :
  • Life Insurance : Aditya Birla Sun Life Insurance Ltd
  • Health Insurance : Aditya Birla Health Insurance Ltd
• Asset Management : Aditya Birla Sun Life AMC Ltd
• Here, NBFC and AMC are established businesses, HFC and Life Insurance are transformational businesses, while Health Insurance is an incubating business.
• Thus, ABCL is having a diversified business model like other financial entities like HDFC and Bajaj.

Aditya Birla Capital Ltd – Subsidiary Companies

• Aditya Birla Finance Ltd, Aditya Birla Housing Finance Ltd and Aditya Birla Insurance Brokers Ltd are fully owned subsidiaries of Aditya Birla Capital with 100% stake.
• While Aditya Birla Sun Life Insurance and Aditya Birla Sun Life AMC both are joint venture between Aditya Birla Group (51% stake) and Sun Life Financial Inc. Canada (49% stake).

Aditya Birla Capital – Q2 FY20 Results Highlights

• Gross Revenue
  • In Q2 FY20, the Gross Revenue is increased by 10.7% YoY to Rs.3,976 Cr from Rs.3,591 Cr in Q2 FY19. While the QoQ rise is 9% from Rs.3,646 Cr in last quarter.
• Operating Profit
  • In spite of 10.7% growth in the Gross revenue, operating profit has increased by 20.4% YoY. It indicates the improved efficiency resulting into the lower growth in operating expenses.
  • Operating profit was Rs.1483 Cr in Q2 FY20 from Rs.1232 Cr last year. However, the QoQ performance is poor giving negative growth of -5.5%. In spite of 9% QoQ rise in revenue, operating profit was lower on account of increased operating expenses in Q2 FY20.
  • Operating profit margin is also deteriorated to 37.29% in September 2019 quarter from 43.07% last quarter but it is improved YoY from 34.32% last year.
• Profit Before Tax (PBT)
  • PBT was increased just by 31% YoY from Rs.284 Cr to Rs.372 Cr in Q2 FY20. However, the sequential growth QoQ was negative almost -15%.
• Net Profit
  • On account of reduced tax from 41%-46% to 18%, the net profit increase by 37.6% YoY. PAT in Q2 FY20 was Rs.256 Cr.
  • Differed Tax Adjustment (DTA) was Rs.64.83 Cr.

Revenue QoQ Trend

There is very inconsistency in the revenue. We can say the revenues are consistently inconsistent past few quarters.

Revenue Mix

• The revenue mix is shown in above column chart. In Q2 FY20, Life Insurance, NBFC, Housing Finance and Asset Management were having 42%, 36%, 8% and 7% contributions respectively in the Gross Revenue.
• Life Insurance sector was the highest revenue offering sector amongst the other business segments.
• Asset Management business’s revenue % contribution is consistently decreasing YoY as well as QoQ.

Operating Profit & Operating Profit Margin QoQ Trend

Operating Profit of ABCL is increasing sequentially from last few quarters. However, the for the recent quarter the increasing trend of operating profit has affected due to the high operating expenses in the September 2019. Owing to the same, the operating profit as well as margin (%) has came down QoQ.

Aditya Birla Capital Ltd – Current Statistics & Valuation Update

• Debt to Equity Ratio = 5.52. The company is debt-burdened (very high debt). The interest coverage ratio is also very low 1.35. It is very negative sign for the company.
• The shareholding pattern on the company in September 2019 quarter with % stake of key shareholders is :
  1. Promoters = 72.70%
  2. FIIs = 2.8%
  3. Mutual Funds = 1.39%
  4. Other DIIs = 7.09%
  5. Public = 16.02%
• The lower stake of institutional investors like FII and DII indicates that they not very confident about the future earnings visibility and growth potential of the company for the long-term.

Valuation

• The current Price to Earnings ratio (19) is much lower than its historical average PE ratio(35.4). It is mainly because of the continuous falling trend in the share price of the company.
• The stock was trading at Rs.237 when listed, but today the share price has fell almost 65%. The stock is currently trading at Rs.82.

Promoters of Avenue Supermarts Planning to Cut Stake to Meet SEBI Rule

Introduction

Avenue Supermarts Promoters, Mr.Radhakishen Damani is planning to cut his stake from 80.21% to 75% to meet SEBI’s Minimum public shareholding rule for listed companies.

Avenue Supermarts Ltd | Promoter Stake Sale Plan

Avenue Supermarts is primarily engaged in the business of organized retail and operates supermarkets under the brand name of D-Mart.

Promoters Planning to Cut Stake to 75% by Feb 2020

• According to SEBI’s Minimum Public Shareholding (MPS) rule, promoters cannot own more than 75% in listed companies.
• Newly listed companies are given a three-year window to comply with the SEBI rule on minimum public shareholding. Avenues Supermarts listed on March 21, 2017.
• In accordance with the same, Avenue Supermarts has initiated preliminary discussions with merchant bankers for a stake sale by the promoters in early 2020.
• As shown in the above table, the promoters are need to cut the additional 5.21% stake. This 5.21% stake in Avenue Supermarts is valued at around Rs.6,300 Cr as per the company’s current total market capitalization of Rs.1.22 Lakh Cr.
• Investors have been bullish on the Avenues Supermarts stock in 2019 and it has risen by more than 25% in the last three months.

Which are the options for promoters additional stake sale?

• There are 2 options for Stake sale of Promoters additional stake of 5.21%.
  1. Offer for Sale (OFS)
  2. Qualified Institutional Placement (QIP)
• The company can even attempt a combination of the Offer for Sale and Qualified Institutional Placement routes which is now permissible according to SEBI norms.
• Many Institutional buyers such as mutual funds are very interested to include the stock in their portfolio on account of its great earnings potential and profitability growth in the long run.

Positive Impacts of Promoter Stake Sale on the Stock

There are many positive impacts of the Avenue Supermarts promoters stake sale on the company.

• The current free float market cap is going to increase with the stake cut by the promoters. As we have mentioned earlier, around Rs.6,300 Cr will be induced in the market cap of the company.
• So, accordingly Avenue Supermarts can make a possible entry into the Nifty as well as Sensex. As a result, it will open a golden gate for the company to get included in the ETFs and Other Index funds also.
• With the help of such good amount of liquidity induced into the company, it can also arrange for Capital expenditure for store expansion, penetration into more smaller cities. The store count of D’Mart is reached almost to 190.
• The supermarket chain which operates on a low-cost model is present in 3 segments, namely, foods, non-foods and general merchandise and apparel, with half of the revenues coming from the first segment.
• So, by the sequential expansion and penetration, the company can attain a great sales and thereby earnings visibility in the future.

Detailed Analysis of NIIT Tech Q2 FY20 Results

Introduction

In this article, we are going to do NIIT Tech stock analysis. Also, Q2 FY20 results, major changes in shareholding pattern and the current valuation of the company are analysed in detail.

NIIT Tech Stock Analysis

Company Profile

• NIIT Technologies is a leading global IT solutions organization. It delivers services around the world directly and through its network of subsidiaries and overseas branches.
• It has built deep specialization in its focus verticals :
  1. Banking and Financial Services : Includes Asset and Wealth Management, Banking
  2. Insurance : Includes property & casualty, Life, Annuities Retirement & Supplement
  3. Travel & Transportation : Includes Airlines, Airport, Travel Technology, Travel Distribution, Hospitality
• The company is engaged in Application Development and Maintenance (ADM), Data & Analytics, Geographic Information System, Managed Services, Cloud Computing, Digital Services and Business Process Outsourcing to organizations.
• Thus, NIIT Technologies render above services in a number of sectors viz. Financial Services, Insurance, Travel, Transportation and Logistics, Manufacturing and Distribution and Government.

Q2 FY2019-20 Results

• Gross Revenue
  • In Q2 FY20, the Gross Revenue is increased by almost 19% YoY to Rs.1,038.5 Cr from Rs.872.3 Cr in Q2 FY19. While the QoQ rise is 8.2% from Rs.960 Cr in last quarter.
• Gross Margin (%)
  • Gross Margin is improved marginally to 34.6% in Sept-2019 quarter. The Gross margin numbers in Q2 FY19 and Q1 FY20 were 34.4% and 33.9% respectively.
• Operating Profit
  • In spite of 19% growth in the Gross revenue, operating profit has increased by 22.2% YoY. It indicates the improved efficiency resulting into the lower growth in operating expenses.
  • Operating profit was Rs.189.8 Cr in Q2 FY20 from Rs.155.4 Cr last year. While the QoQ performance is also very good giving operating profit growth of almost 15.7%.
  • Operating profit margin is also improved to 18.3% in September 2019 quarter from 17.8% last year and 17.1% last quarter.
• Profit Before Tax (PBT)
  • PBT was increased just by 4.6% YoY from Rs.145.9 Cr to Rs.152.7 Cr in Q2 FY20. However, the sequential growth QoQ was significant 16%.
• Net Profit
  • On account of reduced tax from 24% to 18%, the net profit increase by 17% YoY and 12.2% QoQ. PAT in Q2 FY20 was Rs.119.5 Cr.
  • Significant Improvement in operating profit has helped to increase the net profit YoY as well as QoQ.

Business Verticals, Geography & Revenue Mix

1. Business Verticals Mix

• The revenue mix is shown in above chart. In Q2 FY20, banking and financial services (BFS), Insurance and Travel, Transportation and Hospitality (TTH) were having 17%, 31% and 28% contribution in the Gross Revenue.
• Insurance sector was the highest revenue offering sector amongst the all 3 sectors.
• The above 3 core sectors contributions are growing YoY as well as QoQ as we can see in the given pie chart.

2. Geography Mix

• America is the highest revenue contributing region with a stable % of 49% in Q2 FY19, Q1 FY20 and Q2 FY20.
• After America, EMEA (Europe, the Middle East and Africa) region is contributing 34% for Q2 FY20. The % contribution from EMEA region is decreasing subsequently YoY as well as QoQ.
• ROW (Rest of World) is contributing 17% in Q2 FY20, 16% in Q1 FY20 and 14% Q1 FY20. Thus, a continuous improvement is seen in its % figures.

3. Revenue Mix

• In Q2 FY20 and Q1 FY20, revenue from onsite business was 34% and that from offshore business was 66%.
• However, last year Q2 FY19, the % contribution from onsite and offshore business were 64% and 36% respectively.

Fresh Order Intake

• Order intake or Deal wins during the quarter out-scaled the revenue with order intake of $176 Mn. Strong deal wins is a result of micro focus on select verticals and changes in the sales incentive structure.
• Order intake measures how much value a contract is worth once executed. This value reflects true bookings instead of revenue predictions.
• The geographical breakdown of this $176 Mn is :
• USA = $65 Mn
• EMEA = $41 Mn
• ROW = $70 Mn
• During the quarter Q2 FY20, NIIT Tech won $70 Mn deals from APAC (Asia-Pacific Region). It contributes almost 16% to total revenues.
• Thus, the executable order book for ext 12 months reached at $405 Mn from $395 Mn in last quarter and $363 Mn last year.

Client Data

• The repeat business % is improved marginally to 90% in Q2 FY20 from 89% in last quarter. But it has decreased from 96% last year (Sept-2018).
• The distribution of new clients addition is given in detail in above table. Thus, USA is offering more new clients than EMEA and APAC region.

Revenue Concentration & Client Size

• The revenue concentration from top 5 clients is improved subsequently in Q2 FY20 YoY and QoQ. It is increased to 29% from 27% in Q2 FY19 and 28% Q1 FY20.
• Client size (number of clients) between 1 Mn and 5 Mn is improved to 70 in Q2 FY20 from 66 and 63. Also, The client size above 10 Mn is also increased to 9 from 8 in Q2 FY19 and 7 Q1 FY20.
• While, client size in middle range (5 Mn to 10 Mn) is decreased to 16 in Q2 FY20.

People Resources

• From Q2 FY19, after having net addition of 261, the net addition numbers were declining and last quarter it has reached to 34. But In Q2 FY20, total 533 new resource addition is done.
• Attrition rate (%) is increased YoY but decreased QoQ at 12.3% in Q2 FY20.
• Utilization % is also improving sequentially YoY as well as QoQ. It is 80.7% in Q2 FY20. It indicates the company is in a position to keep its 20% resources on bench. That means company is having a very good order intake in coming quarters.

NIIT Tech – Current Statistics & Valuation

• The company is almost debt-free (very negligible debt). The interest coverage ratio is also very good 44.67. It is a very positive sign for the company.
• There was a significant changes in the shareholding pattern on the company in September 2019 quarter. % changes in stake of key shareholders are :
  1. Promoters have increased stake from 33.91% in June-19 to 70% in Sept-19
  2. FIIs have decreased stake from 35.26% in June-19 to 14.89% in Sept-19
  3. DIIs mainly Mutual Funds have decreased stake from 14.48% in June-19 to 5.79% in Sept-19

Valuation

The current Price to Earnings ratio is much greater than its historical average PE ratios for 3, 5, 10 years as shown in above table. The stock is currently overvalued as compared to its historical valuation.

Detailed Analysis of DCB Bank Q2 FY20 Result and Valuation Update

Introduction

In this article, we are going to discuss the DCB bank stock analysis. We will analyse the DCB bank stock in accordance with its Q2 FY20 result, key financials and valuation update.

DCB Bank Q2 FY20 Result Analysis

The company profile of the bank is already stated in out earlier article of DCB Bank Stock Analysis. Lets discuss the Q2 FY2019-20 result of the bank in detail here.

Q2 FY2019-20 Result Update

1. Net Interest Income is increased by 11% YoY due to 16% loan growth (excluding corporate banking)
2. Non-Interest Income growth is 38% YoY as well as 16.8% QoQ mainly because of :
   • Excellent Profits on  Revaluation / Sale of investments in Q2 FY20 (Growth : 57% QoQ and 7 times YoY)
   • Rise in Fees & Commission Income (6% QoQ)
3. Operating profit is increased by almost 26% YoY on account of :
   • Increase in Balance sheet size by 13.8% YoY and 2% QoQ
   • Improved efficiency of bank (Improved cost to income ratio)
4. Net profit rise of almost 24% YoY to Rs.91.4 Cr from Rs.73.4 Cr and 12.7% QoQ is mainly on account of :
   • Improved operating profit
   • Comparatively lowered provision coverage ratio
5. Net Interest Margin is stable YoY and remained at 3.67% while it is slightly decreased QoQ from 3.83% in last quarter.

Balance sheet Summary & Key Ratios

Balance sheet Size QoQ Trend

• We can see there is a continuous rise in the overall balance sheet size of DCB bank in QoQ from Q1 FY19.
• In Q2 FY20, the balance sheet size of the bank is Rs.37,018 Cr, increased by almost 13.8% YoY and 2% QoQ.

Advances Mix Q2 FY2019-20

• Total advances of the bank has increased 12% YoY to Rs.24,797 Cr in Q2 FY20 from Rs.22,068 Cr in Q2 FY19. The above pie chart shows that DCB bank is having a very good diversification in its loan book.
• The 5 key constituents of advances/ loans in Q2 FY20 are :
  • Mortgage = 41%
  • Agri Business = 20%
  • SME + MSME = 12%
  • Corporate Banking = 12%
  • Construction Finance = 7%
• Thus the bank has diversified the risk very prudently as far as advances mix is concerned.

Deposit Mix Q2 FY2019-20

• The total deposits are increased by 12% to Rs.29,363 Cr from Rs.26,168 Cr last year. The deposit mix in Q2 FY20 is given in the above chart.
  1. Residential Term Deposit = 57%
  2. CASA Deposit = 23%
  3. Interbank Term Deposit = 12%
  4. NRI Term Deposit = 7%
• CASA Ratio reduced to 23.2 from 24.3% last year and 24.5% last quarter. It is because :
  • Though Total deposits have grown by 12% YoY and 2% QoQ, the contribution of CASA deposits in the total deposits was not with the same growth rate.
  • The share of Time deposits is higher 64% as compared to 61% last year and 62% last quarter. It indicates total deposits are increased mainly on account of Time deposits.

Cost to Income Ratio QoQ Trend

• The Cost to Income Ratio for Q2 FY20 is improved to 55.51% from 58.88% in Q2 FY19 and 57.46% in Q1 FY20.
• Cost to income ratio of any bank basically tells how much cost is incurred to generate operating income of Rs.100 for the bank.
• The improved cost to income ratio of HDFC bank in Q2 FY20 indicates :
  • Rise in efficiency
  • Increased profitability as compared to Q2 FY19 & Q1 FY20

Asset Quality Q2 FY2019-20

• In Q2 FY20 Asset quality is deteriorated subsequently YoY as well as QoQ.
• That is – Gross NPA and Net NPA ratios have increased in Q2 FY20 (2.09% & 0.96%) as compared to Q2 FY19 (1.84% & 0.70%) due to exposure to the bad loans post NBFC crisis.
• In spite of rise in NPA numbers, the provision coverage ratio of the bank is decreased to 73.09% in September quarter from 76.82% last year (Sept-18) and 75.59% last quarter (June-19).

Gross NPA Mix

• From the above Pie-chart we can analyse the various sectors and their exposure to the Gross NPA mix. The deterioration in the asset quality is mainly on account of 4 heads :
• Mortgage NPAs % in Gross NPA Mix is increased to 39% in Q2 FY20 from 37% last year same quarter.
• SME + MSME NPAs % in Gross NPA Mix is also rose significantly from 9% in Q2 FY19 to 14% in Q2 FY20.
• Agri business has also impacted adversely with the NPA % rise from 19% to 26% to 20%.
• Due to the slowdown in Automobile sector, the NPAs % from commercial vehicle segment is doubled in one year from 7% in Q2 FY19 to 14% in Q2 FY20.

Valuation Update

• The current market capitalization of the DCB bank is Rs.5,670 Cr, while current share price is Rs.182.
• As far as Price to Earnings ratio (PE ratio) is concerned, the current PE ratio of the bank is 16.07.
• The historical average PE ratios are :
  • 3 years PE = 18.92
  • 5 years PE = 17.03
  • 10 years PE = 19.47
• It shows that the stock is currently trading at a discounted valuation when compared with its historical PE ratios.