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India Strategy
Chart Focus: Looking for
Dividends?
Key Debate: India companies are buying back more
stock than before. Will they also pay more dividends?
Market dividend payout unlikely to rise: Indian
companies’ payout ratio appears to track capex cycles.
Historically, Indian companies have raised payouts in
low capex periods. Thus, the two big periods of declining
payout ratio (mid-90s and 2006-08) coincided with big
corporate capex cycles. Normally, Indian companies
tend to conserve cash and sparingly use buybacks to
signal their view on share price (as they are doing right
now) rather than raise dividends. MS analysts forecast
that the payout ratio for the Sensex companies on an
aggregate will fall in the coming 12 months consistent
with a slightly better investment cycle.
India’s dividend yield has improved due to a cyclical rise
in payout ratios and the recent fall in share prices. This is
not too different from where India’s P/B or P/E is – the
absolute level is close to or below long-term averages
whereas the relative number is still slightly above.
For investors who may be worried about growth and
hence stock markets, dividends may be a good way to
protect returns. We have filtered our coverage universe
for stocks that have current dividend yield in excess of
the market level (1.5%), a rising payout ratio in F2012
and double digit profit growth (based on MS forecasts).
Interestingly, all the stocks filtered using these criteria
are rated “Overweight” by MS analysts.
Conclusion: Whilst it appears that the market payout
may not rise and companies will continue to hoard cash
if they do not invest, there are certainly some interesting
bottom-up dividend ideas for investors to trade.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Strategy
Chart Focus: Looking for
Dividends?
Key Debate: India companies are buying back more
stock than before. Will they also pay more dividends?
Market dividend payout unlikely to rise: Indian
companies’ payout ratio appears to track capex cycles.
Historically, Indian companies have raised payouts in
low capex periods. Thus, the two big periods of declining
payout ratio (mid-90s and 2006-08) coincided with big
corporate capex cycles. Normally, Indian companies
tend to conserve cash and sparingly use buybacks to
signal their view on share price (as they are doing right
now) rather than raise dividends. MS analysts forecast
that the payout ratio for the Sensex companies on an
aggregate will fall in the coming 12 months consistent
with a slightly better investment cycle.
India’s dividend yield has improved due to a cyclical rise
in payout ratios and the recent fall in share prices. This is
not too different from where India’s P/B or P/E is – the
absolute level is close to or below long-term averages
whereas the relative number is still slightly above.
For investors who may be worried about growth and
hence stock markets, dividends may be a good way to
protect returns. We have filtered our coverage universe
for stocks that have current dividend yield in excess of
the market level (1.5%), a rising payout ratio in F2012
and double digit profit growth (based on MS forecasts).
Interestingly, all the stocks filtered using these criteria
are rated “Overweight” by MS analysts.
Conclusion: Whilst it appears that the market payout
may not rise and companies will continue to hoard cash
if they do not invest, there are certainly some interesting
bottom-up dividend ideas for investors to trade.
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