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  • Apr 12, 2024 - This Tata Group Stock is Ramping up for a BIG Dividend Bonanza

This Tata Group Stock is Ramping up for a BIG Dividend Bonanza

Apr 12, 2024

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Dividend investing is making sense right now, especially for something that's considered a medium of safe returns.

While believers are arguing that a consistent dividend policy can align the interests of the company and its investors, this is only true in case of mature companies.

Let's take the example of one established Tata group company, that recently made a big dividend announcement.

IT major Tata Elxsi recently said it will hold a meeting on 23 April 2024, to consider the financial results for the quarter and year ended 31 March 2024.

The board may also recommend a final dividend.

Tata Elxsi Dividend History

It's almost guaranteed that the company will announce a big dividend for the year ended March 2024. Going by its history, Tata Elxsi has not disappointed investors.

The company has only declared final dividends at the end of a financial year and that too with higher payouts over the years.

Tata Elxsi Dividend Over the Years

Year End Dividend per share (Rs)
31-Mar-23 60.6
31-Mar-22 42.5
31-Mar-21 48
31-Mar-20 16.5
31-Mar-19 13.5
31-Mar-18 11
31-Mar-17 16
31-Mar-16 14
31-Mar-15 11
31-Mar-14 9
31-Mar-13 5
31-Mar-12 7
31-Mar-11 7
31-Mar-10 7
31-Mar-09 7
31-Mar-08 7
31-Mar-07 7
31-Mar-06 6.5
31-Mar-05 5.5
31-Mar-04 4
31-Mar-03 2.5
31-Mar-02 3.5
31-Mar-01 2.5
31-Mar-00 1.5
Source: Equitymaster

Investors love dividends and companies that pay dividends regularly. Tata Elxsi's dividend payout ratio is unmatchable in the industry.

It paid 81.2% of its earnings as dividends in FY21 and 50% in FY23.

Dividend History

Particulars FY19 FY20 FY21 FY22 FY23
Dividend Payout Ratio (%) 29 40.1 81.2 48.2 50
Average Dividend Yield (%) 1.2 2.1 2.6 0.7 0.7
Source: Equitymaster

The company has no debt on its books, allowing it to reward its shareholders generously.

A big reason why Tata Elxsi has been able to pay big dividends in recent years is owing to strong growth seen in its communication and broadcasting, and transportation verticals.

Going forward, the company is making inroads into the transportation vertical, tapping into the growing electric vehicle (EV) market.

Apart from this, they are expanding their healthcare segment, which has risen 3x in the past two years.

Over the past few years, Tata Elxsi's management guidance has been consistent with its performance. Even now, the management is confident of growing its business at a strong rate with no signs of fatigue.

So, investors are hoping for a similar or even bigger payout this year.

Strong Growth Prospects

Note that Tata Elxsi is one of the biggest proxy plays to India's semiconductor ecosystem.

The Tata Group company has an established presence in the designing and development of systems and software for varied end-user industries, including semiconductors, and Tata Elxsi is slated to play an important role.

The company has a tie-up with Renesas Electronics Corporation, a premier supplier of advanced semiconductor solutions, for setting up a state-of-the-art design centre in Bangalore that will develop targeted solutions for electric vehicles (EV).

Further, in April 2023, Renesas has now introduced an NB-IoT (Narrowband Internet of Things) chipset specifically for the Indian market. The new RH1NS200 is an LTE NB-IoT modem chipset that is designed to operate seamlessly on the networks of all major Indian telecommunications carriers.

Tata Elxsi's semiconductor services are focused on SDK and reference design solutions, AI tools and frameworks, multimedia reference frameworks, and FPGA design and development.

The company is presently engaged in crafting a digital strategy and fostering robust customer connections.

Going forward, the company's venture into the Internet of Things or IoT space is expected to provide the X factor to the Tata Group company, making it a deep tech stock.

Equitymaster's Take on Tata Elxsi

Here's Tata Elxsi what Co-head of Research at Equitymaster Rahul Shah wrote about Tata Elxsi in one of his editorials:

  • So, while both Tata Elxsi and LTTS are good quality stocks, I don't think valuation wise, the risk-reward equation is in our favour.

    They are still at levels that doesn't qualify them to be value buys.

    Besides, a negative earnings surprise may prove to be damaging to their share price while a positive surprise may not lead to a sizeable appreciation.

This analysis was done back in August 2023 when the stock was trading at around Rs 7,000 levels. And at present, the stock trades (more or less) in the same range.

So value investors can check out this analysis and apply the current metrics to gauge the stock's true value: Should You Be Bullish on Tata Elxsi?

How Tata Elxsi Stock Price has Performed Recently

In the past 5 days, share price has fallen 4%. The latest dividend announcement has failed to generate any positive sentiment.

In 2024 so far, Tata Elxsi shares have fallen around 11%.

Tata Elxsi has a 52-week high of Rs 9,191 touched on 18 December 2023 and a 52-week low of Rs 6,186 touched on 17 April 2024.

In the past one year, Tata Elxsi shares have rallied 23%.


In Conclusion

After spending a lot of time studying dividend stocks, it seems like the companies that pay dividends have a good chance of delivering superior performance compared to the ones that don't.

In case of Tata Elxsi, the company has seen a phenomenal growth both in its business and stock price in the past 5 years.

It maintains a strong dividend growth policy and has the benefit of being a Tata Group enterprise. Tata Group is known for its dividends, and Tata Elxsi is no exception.

There's one thing you should keep in mind though... chasing dividends alone is a dangerous move as it could compromise on the fundamentals.

Also, after running a query on the BSE 500 companies, 70-80% of them already pay a dividend. And over the year gone by, most of the stocks have given good returns. So, you can't be sure that excess returns have come due to dividends or other factors.

In conclusion, we are shifting into an era of growth companies... so the next time you look at a potential investment based on the dividend hypothesis, dig one level deeper. It might give you a different perspective that you had missed.

Happy Investing!

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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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...

Yash Vora

Yash Vora is a financial writer with the Microcap Millionaires team at Equitymaster. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.

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