Growth and Income: A High Dividend Stock for 'Growth' Oriented Investors

It's ending as fast as it began for amateur investors who jumped in when the lockdown began and made some quick money during the rally starting in 2020.

A lot of these people started trading right around Covid so their only investing experience was the crazy one-way rally that saw stock prices rise higher and higher.

Most of them have never seen a regular market or worse, a bear market.

For instance, a friend of mine, a teacher by profession took up investing in stocks during the pandemic.

Over the next two years, he would often tell me how the value of his investments had grown multifold.

At times, it even made me wonder, am I in the right line of work? After all, with much more experience than my friend, my returns were not even half as good as his.

But as wiser folks know, success is for those who are consistent.

Bruce Lee said it best when he said, "Long-term consistency beats short-term intensity." It's such a powerful message that applies to pretty much any aspect in life.

The last couple of months have been horrific for a lot of investors, mostly for new investors.

It may sound strange or perhaps absurd to experienced investors, but a lot of these lockdown investors actually believed that markets only go up over time.

And it's not their fault. After all, one will often read articles or come across videos showing how the Sensex has gained consistently over the years.

Or how Rs 10,000 invested in a stock like Wipro turned to Rs 450 crores over 40 years. But no one ever talks about what happened in between those 40 years.

Veteran investors know that markets can stay range bound or drift lower for months on end.

Over the last 12 months, the Sensex has been absolutely flat gaining just 0.2%.

And if one was to look at individual portfolios, there is a lot more pain with some investors seeing losses of up to 50% on their investments.

So, what is an investor, new or experienced to do?

The problem with this question is not that it can't be answered, but that it should not be asked.

No one can predict the markets or the future. Rather, in such uncertain times one should look at an investment that can provide a steady stream of income as well as grow your capital.

But is there an investment that can generate regular income in addition to capital gains?

Fortunately, there is... and it is called a "Dividend Aristocrat".

A dividend aristocrat is a company in the S&P BSE 500 index that not only consistently pays a dividend to shareholders but also increases the size of its pay-out year on year.

Fundamentally strong high dividend yielding stocks have historically presented growth opportunities even during bear markets and periods of uncertainty in equity markets.

Earlier, I wrote to you about two such dividend aristocrat stocks. In case you haven't checked them out, have a look:

• The Greatest Dividend Stock of All Time is...
• The Average 7 Year Dividend Yield for this Stock is 8.1%...

High Dividend Stocks or Consistently Growing Dividend Stocks

So, how does one go about investing in dividend stocks?

One way to do this could be to look up the highest dividend paying stocks of India in say 2022 and invest in those stocks hoping for a repeat this year, right?

Alas! If only, investing was that simple...

Company	2022	2021	2020	2019	2018
	Dividend Paid in Rupees per Share
Union Bank	1.9	0.0	0.0	0.0	0.0
Tata Steel	51.0	25.0	10.0	13.0	10.0
3M India	850.0	0.0	0.0	0.0	0.0

Source: Equitymaster

While searching for high dividend paying stocks in 2022, some of the names that popped up were of Tata Steel, 3M India, and even Union Bank.

Union Bank for instance paid a dividend of Rs 1.9 per share in FY 2022, an impressive dividend yield of 5.2% per share.

But, if one was to look more closely, they would notice that this was the first dividend paid by the bank since 2016.

Similarly, Tata Steel paid out a dividend of Rs 51 in 2022. But if we look at a 5-year period, the average dividend paid per share stands at Rs 13.6 per share.

3M India declared a special 8,500% dividend or Rs 850 per share in 2022. Ironically, this is the first time 3M India has ever paid a dividend to its Indian shareholders since its listing in the last 30 years!

And there are countless other examples of companies having paid big dividends in the last few years but over a longer period have either refrained from paying dividends or paid insignificant amounts.

Hence, investors should not simply look at high dividend paying stocks of the last few years as a safe pick.

These companies may reduce the dividend in the future and the high pay out could be due to a one-time event, like an asset sale, cyclical uptrend, or a special dividend.

On the other hand, we have high dividend yield stocks like Coal India, Power Finance, Hindustan Zinc, NMDC and others which provide yields that beat fixed deposit returns.

But while a dividend yield of 10% and more sounds very attractive and retail investors get swayed towards it, the bigger point is loss of capital.

Company	Dividend Yield(%)	5 Year Stock Returns*
Coal India	8.0%	-20.5%
Hindustan Zinc	15.6%	1.7%
NMDC	13.2%	-7.7%

*Absolute Stock Returns Over Last 5 Years
Source: Equitymaster

Unless there is a major change in the way these companies operate or if you are buying these stocks at the bottom of their earnings cycle, it is highly unlikely that you would get a decent capital appreciation.

Hence, we decided to skip the popular high dividend yield stocks for our discussion.

Instead, we set out to find a company that was fundamentally strong, had good growth prospects and was available at reasonably priced valuations.

Most importantly, we looked for a dividend aristocrat that had consistently grown its dividend over the last 15 years.

Remember, long-term consistency beats short-term intensity!

Our research discovered a surprising stock that doesn't normally feature on the regular list of dividend stocks but which fit into the criteria as per our parameters.

This company has not only paid dividends consistently over the last fifteen years but also increased dividend per share continuously over the years.

TTK Prestige Ltd: A Consistent Dividend Compounder

Over the last 15 years, the NIFTY's annualised return stands at 9.1% whereas the annualised dividend growth rate for TTK Prestige is at an unbelievable 21%.

In 2008, TTK Prestige paid a dividend of Rs 0.35* per share. In 2022, the dividend amount was astonishingly higher at Rs 6 per share!*Dividend paid in 2008 was Rs 3.50 per share. Figures adjusted for stock split from Rs 10 to Rs 1 per share in 2022.

Over the last 15 years, the company has consistently increased its dividend payouts, a sign that the company is consistently generating healthy cash flows.

Year	Rupees	Dividend (%) of FV	Increase in Dividend YOY (%)
2007	3.0	30%
2008	3.5	35%	17%
2009	5.0	50%	43%
2010	10.0	100%	100%
2011	12.5	125%	25%
2012	15.0	150%	20%
2013	17.5	175%	17%
2014	20.0	200%	14%
2015	22.0	220%	10%
2016	27.0	270%	23%
2017	27.0	270%	0%
2018	30.0	300%	11%
2019	30.0	300%	0%
2020#	20.0	200%	-33%
2021	30.0	300%	50%
2022*	6.0	600%	100%

* Shares Split from Rs 10 to Rs 1 per share (At FV of Rs.10, the dividend would be Rs 60 per share).
#Pandemic Year

But TTK Prestige is not just a Dividend Stock...

Over the last 20 years, the stock has risen 115,350% in absolute terms! In terms of annualised returns, the stock has delivered an impressive CAGR of 40%.

As we just saw, TTK Prestige has been able to provide the best of both worlds to its shareholders.

The company has provided significant capital appreciation as well as consistently increased its dividend per share year on year over the last twenty years.

Let's delve into the company a little deeper to understand what it does and its future prospects.

TTK Prestige- A Fundamentally Solid Company with Strong Parentage

TTK Prestige is a fundamentally solid company with strong parentage. The TTK group was founded in 1928 as an indenting agency. Today the TTK group spans 30 product categories with 7 group companies and a turnover in excess of Rs 30 billion.

The group company products reach every continent of the world. TTK Prestige Ltd. is the flagship company of the group.

Growth prospects

The Past...

TTK Prestige is India's leading player in kitchen solutions and has been successful in transforming itself from a company manufacturing pressure cookers to possessing the entire gamut of home and kitchen appliances.

The company predominantly operates in the kitchen and home appliances segment with a wide range of product categories. In 2018, the company also entered the cleaning solutions category.

The Present...

TTK has maintained its leadership position in key categories like pressure cookers, cookware, value added gas stoves, induction cook top, kettles, etc and is steadily improving its market share in the mixer grinder segment.

Consolidated 9 Months Period	Dec '22	Dec '21	Dec '20	Dec '19	Dec '18
Net Sales (INR bn)	21.6	20.2	15.8	16.5	16.2
Net Profit (INR bn)	1.9	2.2	1.5	1.7	1.4

Source: Equitymaster

For the first 9 months of the current financial year, the company has delivered a tepid performance as compared to the previous years.

The company's sales grew just 7% for the 9-month period ended December 2022 as compared to the previous year.

Profit for the same nine-month period dipped 12.4% from Rs 2.2 bn to Rs 1.9 bn YoY.

The markets have punished this underperformance resulting in the stock declining over 16% over the last 12 months.

The management has highlighted two primary reasons for the dismal performance-

• Kitchen appliances has seen a reduced share of wallet and tepid demand due to spending on alternate avenues like automobile, travel, entertainment, and tourism post the pandemic. It is expected that this should normalise over the coming year.
• The company had accumulated high-cost inventory in the earlier quarters. This has resulted in contraction in gross margins over the last year which could last till the March 2023 quarter.

The Future...

As the Indian middle class continues to grow and incomes rise, there is increasing demand for kitchen appliances.

TTK Prestige, the market leader is well-positioned to benefit from this trend, with a diverse product portfolio that includes pressure cookers, cookware, gas stoves, and small kitchen appliances.

The company has also been following a strategy to target specific geographies and categories which are large in size, where TTK prestige is a relatively smaller player.

The company plans to go in there and build up its presence in these categories and geographies.

TTK Prestige has been expanding its presence in international markets, particularly in Africa and the Middle East. This provides the company with new growth opportunities and helps to diversify its revenue streams.

The company is debt-free and carried a comfortable free cash of around Rs 7 billion as on 31 March 2022.

The management has indicated that they are actively looking at acquisitions that add strategic value to the business and helps the company to expand its customer base.

Going forward, the company expects to maintain EBITDA margins in the range of 14-16% through improvement in efficiencies.

In the December 2022 quarter, the company introduced 27 new product variants across all categories and expects to launch around 50 more variants in the current quarter.

TTK had acquired a stake in Ultra Fresh in 2022, which is mainly into manufacturing and selling modular kitchens business.

Ultrafresh today has over 130 studios across India and it has achieved sales of Rs 176 million in the first 9 months of FY2023.

The modular kitchen segment is on the rise in India and foresees immense growth potential across the country in the coming years.

Some of the key factors responsible for its growth are an upsurge in real estate development and sales, , nuclear family living, changes in consumer behaviour and acceptance to pay a premium for better products and services.

The management has indicated that it has aggressive scale up plans for Ultra fresh over the next two to three years and is looking to scale up revenues to Rs 4 bn over the next two to three years.

Hence, despite the weak performance over the last year, the lower valuations might make this stock attractive at current market price for long term investors.

Buying a Dividend Paying Stock for Growth Oriented Investors

Investors generally look for stocks in a high growth phase to generate wealth and often tend to ignore stocks that are more balanced in terms of paying regular dividends as well as providing capital appreciation.

When looking for such balanced stocks, one should also look at the financial strength of a company, its return on equity as well as prospects of future dividend and revenue growth .Dividend aristocrats such as TTK Prestige are established companies with strong brand recognition, diversified product lines, and stable cash flows.

As such, they are well-positioned to weather economic downturns and emerge stronger on the other side. This long-term growth potential can translate into capital appreciation for investors in addition to the regular dividend payments.

Overall, investing in dividend aristocrats can be a smart strategy for investors who are looking for stable income, long-term growth potential, and lower risk.

However, as with any investment strategy, it's important to do your research and ensure that you understand the risks and potential rewards before investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...