Backed by 101 glorious years of experience in steel making, Tata Steel is world's 6th and India's largest private sector steel company with a capacity of 30 m tonnes. It is among the lowest cost producers of steel in the world. It is world's second most geographically diversified steel producer, with operations in 26 countries and commercial presence in over 50 countries. Through the acquisitions of Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Asia, Singapore, Tata Steel has created a manufacturing and marketing network in Europe, South East Asia and the Pacific-rim countries.
The company has been continuously paying dividends to its shareholders since the last 47 years and is among one of the very few Indian companies with such an amazing track record of dividend payout. Hence, given this long history, there are very little chances that the company might stop paying dividends to its shareholders in the future.
It should be noted that the stock has corrected nearly 80% from its all time high of Rs 992 per share. Infact, at the current price of Rs 200 or thereabouts, the stock is trading at a mouth-watering dividend yield of around 8%. The last time the stock traded at such an attractive dividend yield was way back in FY02, when investors were predicting a gloomy future for the company just as they are doing now. Back then, the company had touched a low of Rs 67 per share, indicating a dividend yield of a little more than 7%. If one had bought shares in the company at that depressed price and had reinvested the entire dividend proceeds back into the company at an average price for that year, then even at current prices, where the company is trading at 80% off its all time highs, the compounded growth rate would have amounted to a very sound 21%. Had the investor managed to sell all his shares at the all time highs of Rs 992 per share, his returns would have grown at an astonishing CAGR of 52%. However, we would like to add that this would have amounted to timing one's entry and exit to perfection and this is a very difficult task even for the most seasoned investors, let alone a lay investor.
Would investing in the company at current levels lead to similar returns in the future? This would be the question that would be uppermost in every investor's mind right now. Well, since dividend payouts depend upon the profitability and the capex needs of the company in the future, estimation of future dividends need to take into account these two important variables in mind. Once again, a peep into the past may provide some guidelines. Since the company may have undertaken capex plans and steel prices would have fluctuated in the past as well, did this force the company to cut its dividends significantly? Since FY91, there have been only two instances where the company has been forced to cut its dividends. The cut had been of the magnitude of 30% on one occasion and 20% on the other occasion. Barring these two instances, the company has never cut its dividend per share since 1991. However, it should be added that on quite a few occasions, it has kept its DPS constant.
We would like to conclude that a company does not operate in a vacuum. The environment keeps on changing. But does it change so much so as to warrant the kind of thrashing it has received in the past few months. The answer is for the investor to find out.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Use of the information herein is at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-6143 4055. Fax: +91-22-2202 8550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407