High Dividend Stocks

Dividend is a tax-free income in the hand of shareholders. Dividends are far more profitable today than it would have been in the last four years. ET Intelligence dug deep to find out companies, which are consistent in paying dividends and in some cases have also increased the payout ratio. This is because the stock prices have crashed in last one year, as result the dividend yield (dividend per share divided by price per share) has gone up.

Therefore, the dividend per rupee of investment is much more today than it was earlier. However, investors should not aim at accumulating stocks with high dividend yield because such high yields may not be sustainable in case profit falls due to economic slowdown. ET Intelligence dug deep to find out companies, which are consistent in paying dividends and in some cases have also increased the payout ratio.

A high payout ratio means a higher percentage of profits are distributed among shareholders as dividends. The payout ratio has come down for most of the companies in the table. For instance, Great Eastern Shipping paid 38.6% of its profits as dividend in FY 2003, which came down to 17.3% in FY 2008. The drop in payout ratio has to be seen in the light of high growth in profits. When profits rise at astronomical rates, the dividend growth tends to be a bit lesser because the company prefers to retain some amount with it for further investment.

Investors interested in earning dividends should steer clear of companies with high fluctuations in profits. For instance, Tata Motors had incurred losses in FY 2001 and FY 2002. Though the company is incurring losses, it can still pay dividend from its past cash flows. But sustaining dividend payment will become extremely difficult in near future. Similarly, other auto manufacturers, like Ashok Leyland, were also excluded from the sample because they operate in highly cyclical industry.

As we all know that investing in stocks is a risky affair, so, an investor should always try to balance his investments between stocks and fixed interest instruments, which are less risky. We did a simulation (taking the stocks mentioned in the table) to calculate the return purely from the dividend the stocks have been paying. We assume that an investor had put in Rs 1,000 in each of the 10 stocks on April 01, 2003, taking his total investment to Rs 10,000.

The amount invested in all stocks was same to make a portfolio with equal proportions invested in different stocks. At the end of first financial year on April 01, 2004, the investor would have received dividends from the companies amounting to Rs 1,264. To minimise risk, we assume that the investor had invested the dividend in a fixed deposit for one year at the interest rate of 5.25% and then kept on rolling the fixed deposit every year for another one year. This is called ‘hybrid strategy’, wherein the income from risky investments (in this case equity) is routed to relatively less risky investments (in this case fixed deposit).

Similarly, every year on the first day of April, the investor would have got dividends, which he would have routed to fixed deposit of one year. Following this strategy, the investor would have made Rs 8,970 from dividend and interest on those dividends in five years. It is noteworthy that adopting this hybrid strategy the investor would have almost recovered 90% of his entire investment in five years time. This translates to annual return of 13.7% per annum from dividends only.

The most interesting part of the result is that the investor would have made a much higher return on his investments than offered by any fixed rate instrument. On the top of it, that return would have had been entirely free from taxes. The interest on fixed deposit is taxed. As the interest earned formed a lesser part of the return; the tax incidence would also had been much lesser. Moreover, we have not considered the capital gains. The value of the total portfolio stands at Rs 46,302 today— close to five times of the principal amount of Rs 10,000—though the market has crashed by more than 50% since its peak.

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Sensex slips into the red at 15:19 hrs

Following a bout of selling in some blue chip stocks, the market has slipped into the red now. Oil, pharma, auto and capital goods stocks have declined sharply. Realty, power and bank stocks are also seen drifting lower. Select information technology, metal and consumer durables stocks are trading higher. Several midcap and smallcap stocks have come off their highs and a few of them have even slipped into the red on selling pressure.

The Sensex is down by 58.36 points or 0.38% at 15,409.10 now. The Nifty has lost 17.15 points or 0.37% at 4591.20. HCL Technologies, Ranbaxy Laboratories, Reliance Industries and Bharti Airtel have lost 2% - 2.5%. Tata Motors, Cipla, Mahindra & Mahindra, Siemens, ONGC, Larsen & Toubro, ACC, Wipro, Tata Communications and Power Grid Corporation are also down with sharp losses.

Reliance Communications rules firm with a strong gain of 5.5%. GAIL India, BPCL, Suzlon Energy, Ambuja Cements, Sterlite Industries, Infosys Technologies, Tata Steel, Sun Pharmaceuticals and State Bank of India are also trading in the positive territory with notable gains. Chennai Petroleum Corporation, Mundra Port, MphasiS, Glenmark Pharmaceuticals, Container Corporation and Aditya Birla Nuvo are some of the prominent gainers today. IFCI, Oracle Financial Services, Ashok Leyland, Tech Mahindra, Bank of India, GMR Infrastructure, United Spirits, Vijaya Bank, Reliance Natural Resources and Biocon are down with sharp losses.

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S&P cuts Tata rating over Jaguar Land Rover worries

A leading global ratings agency on Tuesday downgraded the credit rating of India's top vehicle company Tata Motors, citing worries over its struggling British luxury car unit Jaguar Land Rover. Standard & Poor's Ratings Services said it had lowered its long-term corporate credit rating on Tata Motors Ltd to 'B' from 'B+', pushing the company's ratings deeper into "junk debt" territory.

It also gave its long-term corporate credit rating a "negative outlook," meaning a possible further downgrade for Tata Motors, which recently launched the Nano, the world's cheapest car that retails for just over 2,000 dollars. "We lowered the rating on Tata Motors to reflect the challenging operating performance at Jaguar and Land Rover for the year ended March 31, 2009, and our expectations of a similar operating performance in fiscal 2010," said Standard & Poor's credit analyst Suzanne Smith.

"This, along with a high debt level, has placed significant pressure" on Tata Motors' finances," Smith said in a statement. The downgrade came as Britain's Observer newspaper reported that Tata was close to agreeing a financial aid package with the British government for Jaguar Land Rover (JLR) after a year of difficult negotiations.

Tata Motors announced a surprise 58 percent jump in first-quarter net profit to 5.13 billion rupees (105 million dollars) last week, helped by a change in its accounting policy. But the company still has to announce consolidated financial results for the first quarter of the financial year that would include its loss-making JLR subsidiary. The negative credit rating outlook "reflects our view on the uncertainty over when JLR's operating performance will improve, given the weak global auto market conditions," Smith said.

"It also factors in Tata Motors' highly leveraged financial risk profile, given extremely high debt levels," she said. Tata bought motoring icons Jaguar and Land Rover from Ford Motor Co last year for 2.3 billion dollars. Their sales have been hit by the global downturn, which has hurt the market for luxury vehicles. The company's vice-chairman Ravi Kant said in June that Jaguar Land Rover global sales for the 10 months ending March fell by 32 percent to 167,000 vehicles from 246,000 the previous year.

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SBI, Tata Motors, Sahara figure in top 100 tax defaulters list

Country's largest state-owned bank SBI, automobile giant Tata Motors and oil major Indian Oil Corporation, besides Sahara India and its Globe's biggest M&A dealmakers promoter Subroto Roy figure in the list of top 100 tax defaulters in the country.

Disclosing the list of defaulters in the Rajya Sabha today, the Minister of State for Finance S S Palanimanickam said in a written reply that top 100 tax defaulters owe to the exchequer whopping Rs 1.41 lakh crore -- more than three times the amount the government spends on NREGA scheme annually to provide employment to BPL families.

The Centre is taking various steps to recover the outstanding dues, the minister said, adding that the government has requested the adjudicating authorities like ITAT and Settlement Commission "to dispose of high demand cases expeditiously."

As per the list, disgraced stud farm owner Hassan Ali Khan tops the list of tax defaulters with an outstanding arrear of more than Rs 50,000 crore.The list of tax defaulters also includes stock broker late Harshad Mehta and his associates and other brokers like A D Narrotam and Hiten Dalal.

While the SBI owes Rs 333.6 crore in taxes, Tata Motors and Indian Oil Corporation have to pay Rs 206.5 crore and Rs 210.3 crore to the treasury. As regards Sahara, many of its group companies figure in the list of defaulters, while its promoter Roy owes Rs 230 crore to the exchequer.

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TATA's ASEAN strategic business hub possibly in Thailand

The TATA Group is actively considering using Thailand as a strategic marketing hub for promoting its products in the ASEAN region, revealed that country's Industry Minister, Chanchai Chairungruang, who is currently on a six-day visit to India. Interacting with media after meeting with Indian businessmen here, Chairungruang said TATA Motors (TATAMOTORS.BO : 369.45 +7.45), one of India's best known automobile manufacturers, is looking to expand its export market in ASEAN countries, and plans included introducing the TATA Motor's truck range, an eco-car and possibly the TATA Nano (the world's most economically priced passenger car).

A TATA Motors, Thailand, representative said talks for the launch of the Nano were still at a very preliminary stage, but acknowledged that the project could form part of the Thailand-India Free Trade Agreement (FTA) expanded negotiations that are to take place later in the year. For TATA Motors to think of Thailand as a future investment base does not come as a surprise, as the country has evolved into the largest vehicle producer in South East Asia since constructing its first automotive plant in 1961.

Today, Thailand's automotive products are exported to 130 countries worldwide. The country is also the world's largest producer of one-ton pick-up trucks, the seventh largest automotive exporter and the 14th largest automotive producer overall. TATA Motors appears interested in bidding for an eco-car project, as the Board of Investment of Thailand (BOI) and the Thai Ministry of Finance is offering the maximum incentives to manufacturers of eco-cars.

Under the new incentives program, the BOI will offer projects with a minimum investment value of five billion Baht (approximately 144 million USD), a corporate income tax holiday of eight years, regardless of location, and duty-free importation of machinery. On its part, the Thai Finance Ministry will allow eco-car manufacturers to pay a reduced excise tax of 17 percent on cars with engines smaller than 1300 cc for petrol-powered cars and 1400 cc for diesel powered cars.

This is significant in that the excise tax currently levied on standard passenger cars in Thailand ranges between 30 to 40 percent, and if reduced for eco-cars, it would be the equivalent of 2000 USD on the car's retail price. The finance ministry is also offering a three-year exemption of import duties on auto parts used to make vehicles E85 ready and which cannot be produced in Thailand.

Cars using E85 will have their excise taxes reduced to 25 to 35 percent depending on the size of the engine. Excise tax on petrol in this category of car will also be reduced from 3.6850 Baht per liter to 2.5795 Baht per liter.

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