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What happens when you go behind DIVIDEND YIELD ignoring GROWTH...
Educational thread based on learning from Mr. Market...
No recommendations..
Case 1 - COAL INDIA
In 2017 approx dividend Rs. 20 >> Price ~250; Yield 8%..
You might think its better than FD+tax free
(1/n)
Next year dividend ~16; Price in 2018 ~270; Yield ~6%..
You say not bad...interest rates are down...so still better than FD...
You see bit of current growth in PAT and say to yourself..market is wrong...I am SMART :)
(2/n)
You say not bad...interest rates are down...so still better than FD...
You see bit of current growth in PAT and say to yourself..market is wrong...I am SMART :)
(2/n)
Fast forward in 2019...price ~220, Dividend ~15...Yield ~7%...not bad...still beats FD...
Growth still ok...you say...Acche Din Ayenge...console yourself with dividend yield
(3/n)
Growth still ok...you say...Acche Din Ayenge...console yourself with dividend yield
(3/n)
You enter 2020....and as always market is smart most of the times
Price - 120; Dividend - 12; Yield - 10%
You still feel good if you did not get it...wow 10% yield is superb.
TTM PAT growth negative 22%....share price almost half...
Think yourself: Did you make money?
(4/n)
Price - 120; Dividend - 12; Yield - 10%
You still feel good if you did not get it...wow 10% yield is superb.
TTM PAT growth negative 22%....share price almost half...
Think yourself: Did you make money?
(4/n)
Another company and I was invested in it few years back (no positions)
Ambika Cotton...capex planned but took ages...I thought still giving 3-4% yield..not bad..
Excellent management, Excellent products..
Hardly any growth, difficulty to do capex, sector tailwind
(5/n)
Ambika Cotton...capex planned but took ages...I thought still giving 3-4% yield..not bad..
Excellent management, Excellent products..
Hardly any growth, difficulty to do capex, sector tailwind
(5/n)
In 2016 share price at 800 Rs.; EPS 72 Rs....
Fast forward 2020: share price at 700 Rs.; EPS 76 Rs.
5 year profit CAGR >> 0%
(6/n)
Fast forward 2020: share price at 700 Rs.; EPS 76 Rs.
5 year profit CAGR >> 0%
(6/n)
Case 3: ITC
High RoE cigarette business suffering...growth tapering...govt finds it lucrative to tax these companies heavily..
Price in 2016 ~250; Dividend >> 8; Yield ~3.2%
Fast forward 2020
Price 185; Dividend >> 10 Rs. Yield ~5.5%
5 years PAT CAGR > ~10%
(7/n)
High RoE cigarette business suffering...growth tapering...govt finds it lucrative to tax these companies heavily..
Price in 2016 ~250; Dividend >> 8; Yield ~3.2%
Fast forward 2020
Price 185; Dividend >> 10 Rs. Yield ~5.5%
5 years PAT CAGR > ~10%
(7/n)
What are the lessons here:
As an investor, growth and reinvestment of cashflows at high ROCE is what creates compounding engine for companies
Think about...
Why dividend is increasing or yield is high?
Due to lack of re-investment opportunities?
Headwinds in Industry?
(8/n)
As an investor, growth and reinvestment of cashflows at high ROCE is what creates compounding engine for companies
Think about...
Why dividend is increasing or yield is high?
Due to lack of re-investment opportunities?
Headwinds in Industry?
(8/n)
Is the sector sunset sector? Is company just barely able to survive?
If it's re-investing cashflows, is it in high RoE segment or dull segment that sucks capital (eg. Hotel, Infra etc.)?
Is company facing too much of competition?
Is moat getting eroded?
(9/n)
If it's re-investing cashflows, is it in high RoE segment or dull segment that sucks capital (eg. Hotel, Infra etc.)?
Is company facing too much of competition?
Is moat getting eroded?
(9/n)
If current growth is decent, why is market pricing company like this? What about future? Can I see good growth visibility? What are the triggers?
If you want to learn more...you can join my masterclass >> http://technofunda.co/webinar
(10/10)
If you want to learn more...you can join my masterclass >> http://technofunda.co/webinar
(10/10)
