Are there stocks with assured returns? Isn’t that an oxymoron? Well, not if you are a stock picker with an eye for generous, steady dividends.
But if stock picking is difficult, stock picking for dividends is next to impossible. The reasons are many. Out of India's 111 capital market segments starting from ‘Abrasives’ and ending in ‘Vanaspati’, we couldn’t find barely a dozen companies with consistent dividend returns even while maintaining capital appreciation too.
Finally, only 12 stocks passed out from our dividend-school with a first-class. That is, 12 out of 3000 stocks, which is a success percentage of not even 0.5%! What made the screening all the more tough was whether the current dividend yield was a one-off phenomenon in FY’10 or a stable track-record of returns during the past five years.
Of course, current or past track-record doesn’t guarantee anything in the future, but chances are that those players with a consistently good track-record in dividends are highly likely to continue that performance in the coming years.
Then came the issue of diversification. We didn’t want your portfolio to suffer due to setbacks in one, two, or even half-a-dozen industries. That is why our 12 dividend pass-outs are from 12 different sectors. The basic bet is on the macro of India’s domestic growth, though to balance things properly, we have been careful to include a few stories on the global recovery macro.
Then came the issue of diversification by capital base, and we have taken care to include heavyweights, mid caps, and small caps, so that you have the best of three worlds - the steady capital appreciation of large caps, the faster appreciation of mid caps, and the risky but sometimes stunning performance of small caps.
So, we know you are thirsting to know what kind of dividend yields we have targeted. Well, our top dividend yield at current market price is 7.69% in an auto player, and our lowest at 5.06% is by an electric equipment player. However, none of our picks have a dividend yield below 5%, with the average of the pack being an impressive 6.01%. In other words, a Rs. 10 lakh portfolio should yield Rs. 60,100 yearly in dividends alone.
Of course, that is not all. We have taken care to include only those stocks that have a history of capital appreciation as well as a future looking good. For verifying the past track-record we have computed their wealth-creation history and for verifying the future outlook we have provided one of the best indicators, Return on Equity.
No share with a wealth creation performance less than 200% (except one with 192%) has been included, while no share with an RoE less than 12% has been included. In contrast, there are a couple of powerful players in our list with amazing capabilities like, wealth creation of 30,681% or RoE of 64.41%!
All these companies for whom paying back their shareholders is a priority are likely to maintain dividend yields, even when the share price shoots up. So, it is basically capital growth plus dividend appreciation. And needless to say investing in a dividend-yielding pack is best done when markets are trying to find new bottoms to consolidate again. So, without making you read more, here is our pack of 12, sorted according to their historic wealth creation:
01) Castrol India Limited (BSE: 500870, NSE: CASTROL)
The absolute leader in the lubricants space by way of sales, profits, and market cap. Sales is 3.7 times higher than the No. 2 player. Profit is 6.6 times higher. And achieves this on just double the asset base of the nearest competitor. The market cap is already huge, but believe it or not, it still has room to improve, if you take this MNC associate's stellar track-record in delivering shareholder value.
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Dividend Yield:
5.84%
Past Wealth Creation:
30,681%
Return on Equity:
76.98%
Segment:
Lubricants
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02) Hero Honda Motors Limited (BSE: 500182, NSE: HEROHONDA)
The undisputed leader in two-wheelers, by way of sales and profits. Delivers this magic on a smaller asset base than No. 2 player, Bajaj Auto. Lags Bajaj only in market cap. Plans to more than offset Honda leaving the company by entering bike exports, and the booming three-wheeler segment.
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Dividend Yield:
7.69%
Past Wealth Creation:
8840%
Return on Equity:
64.41%
Segment:
Auto - 2 & 3 Wheelers
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03) Kabra Extrusion Technik Limited (BSE: 524109, NSE: KABRAEXTRU)
A medium to small-sized player in the heavy engineering sector. But noted for its profitability. And achieves this on a smaller asset base. Market cap also has good room to improve.
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Dividend Yield:
6.42%
Past Wealth Creation:
1444%
Return on Equity:
24.54%
Segment:
Engineering - Heavy
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04) Cosmo Films Limited (BSE: 508814, NSE: COSMOFILMS)
This Jaipuria Group company has been the pioneers in BOPP films in the country, and still continues to be India's largest exporter. With the acquisition of USA based ACCO's world-leading print finishing / thermal films business, GBC Commercial, this polypropylene player looks good. Sales continues to be strong, even while profitability needs to improve. Market cap should improve going forward.
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Dividend Yield:
5.38%
Past Wealth Creation:
600%
Return on Equity:
15.70%
Segment:
Plastics
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05) Oil & Natural Gas Corporation Limited (BSE: 500312, NSE: ONGC)
The undisputed leader in Oil Drilling & Exploration sector. Sales is 2.41 times that of nearest competitor. Profit is even better at 5.34 times the No. 2 player. Achieves this on thrice the asset base, but who cares with its near monopoly status. Market cap is already gigantic, but will continue to keep pace with business growth.
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Dividend Yield:
6.21%
Past Wealth Creation:
Past Wealth Creation:
597%
Return on Equity:
Return on Equity:
18.48%
Segment:
Segment:
Oil Drilling & Exploration
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06) Gillanders Arbuthnot & Company Ltd (BSE: 532716, NSE: GILLANDERS)
This 76 year old veteran is now a diversified player in tea, textiles, properties, engineering, & chemicals. Sales continues to be strong even though profitability needs to improve. Still, achieves the sales on a much smaller asset base that leaves room for market cap to improve, if profitability improves.
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Dividend Yield:
5.46%Past Wealth Creation:
349%
Return on Equity:
Return on Equity:
15.18%
Segment:
Segment:
Plantations - Tea & Coffee
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07) PAE Ltd (BSE: 517230, NSE: PAEL)
Formerly Premier Auto Electric, this Walchand Doshi Group company is a medium-sized player by sales and profits in the wide ranging auto ancilliary sector of the country. But delivers performance on a lower asset base than comparable peers. Market cap has space to improve. Also in home power solutions and solar photovoltaics.
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Dividend Yield:
6.90%Past Wealth Creation:
300%
Return on Equity:
Return on Equity:
13.05%
Segment:
Segment:
Auto Ancillaries
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08) Panasonic Carbon India Co Ltd (BSE: 508941, NSE: PANCARBON)
An affiliate of Japanese giant, Panasonic. A smaller player in India's Electrodes / Graphite segment. But more profitable than a couple of peers. Market cap reflects profitability, but has some room to improve due to surprises possible due to the international connections.
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Dividend Yield:
5.30%Past Wealth Creation:
270%
Return on Equity:
Return on Equity:
12.06%
Segment:
Segment:
Electrodes / Graphite
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09) Mangalam Cement Ltd (BSE: 502157, NSE: MANGLMCEM)
This BK Birla Group company is a medium-range player among the large cement manufacturers. Slightly more profitable than comparable players by sales, and also achieves this on a slightly smaller asset base. Market cap will rise surely in tandem with cement fortunes.
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Dividend Yield:
5.40%Past Wealth Creation:
258%
Return on Equity:
Return on Equity:
31.12%
Segment:
Segment:
Cement - Major
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10) Visaka Industries Limited (BSE: 509055, NSE: VISAKAIND)
A major player in the building materials industry. More profitable than comparable peers by sales. Achieves this on an industry average asset base. Market cap has much room to improve.
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Dividend Yield:
5.22%
Past Wealth Creation:
Past Wealth Creation:
227%
Return on Equity:
Return on Equity:
24.27%
Segment:
Segment:
Cement - Products / Building Materials
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11) HCL Infosystems Limited (BSE: 500179, NSE: HCL-INSYS)
The clear leader by sales and profits, beating No. 2 players in these respects by almost double the size. But achieves this only on around double the asset base than peers. Still, if the Nokia deal is extended in some way, and Nokia's fortunes in India turns around after the Windows tie-up, market cap has room to zoom.
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Dividend Yield:
7.24%Past Wealth Creation:
223%
Return on Equity:
Return on Equity:
13.73%
Segment:
Segment:
Computers - Hardware
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12) Easun Reyrolle Ltd (BSE: 532751, NSE: EASUNREYRL)
A noted player in the Electric Equipment sector with a diversified product portfolio in generation, transmission, distribution, & industrial products. Noted for its excellent profitability vis-a-vis comparable peers by sales. Delivers the magic also on a smaller asset base. Market cap definitely has some room to grow.
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Dividend Yield:
5.06%
Past Wealth Creation:
Past Wealth Creation:
192%
Return on Equity:
Return on Equity:
26%
Segment:
Segment:
Electric Equipment
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(Editor’s Note: The RoE calculated is for FY'10. The past wealth creation calculated is from their respective listing dates or the year 1991, whichever is later, to today, and takes into account all bonuses and splits, but not dividends and rights. So the actual wealth creation may be higher for some scrips. This article should not be taken as investment advice, and investors should act only according to their further personal analysis and/or further professional help. Investing in any stock carries significant risks including the stocks listed above. To minimise risks, always invest/trade with suitable stop-losses.)
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