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Vedanta could announce another hefty dividend at around 10% yield

Vedanta remains the key source of income for the parent company to meet its debt obligations.

, ET Bureau|
Updated: Dec 05, 2019, 03.23 PM IST
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The company has been giving heavy dividends over the past three years – more than 100 per cent payout ratio – as the parent has high debt.
ET Intelligence Group: Shares of Vedanta are trading at an estimated dividend yield of almost 10 per cent. Going by historical record, investors can expect the dividend in less than six months. Vedanta’s Tuesday’s closing price was Rs 139. According to Bloomberg, Vedanta is expected to give a dividend of Rs 13.84 per share in FY20. It gave dividend of Rs 19.45, Rs 21.2 and Rs 18.85 in FY17, FY18 and FY19, respectively.

The company has been giving heavy dividends over the past three years – more than 100 per cent payout ratio – as the parent has high debt. India-listed Vedanta remains the key source of income for the parent company to meet its debt obligations.

Moreover, the dividend ex-dates in FY17 and FY18 were in the months of March and April. For FY19, the dividend ex-date was in November. In FY20, the company hasn’t yet paid out the dividend.

Dividend payout expectations in the following fiscal are even higher according to Bloomberg consensus. If this remains unchanged, it could mean Vedanta investors make more than 10 per cent on dividends for the coming two years. For instance, dividend per share for FY21is Rs 15.1.

Despite weak set of numbers and guidance cuts, the Vedanta stock has remained fairly stable after results.

Vedanta snip 1

India’s largest mining conglomerate has operations across oil & gas, zinc, aluminium, iron ore, copper, lead and silver and power, but zinc and oil and gas remain the key segments at present as they contribute most of the company’s EBIDTA.

For the September quarter, the company posted an EBIDTA of Rs 4,420 crore, down 15 per cent on year-on-year. Consolidated net profit rose by 44 per cent to Rs 2,730 crore as it benefited from one-time deferred taxes of Rs 1,891 crore. Vedanta sales fell marginally by 3 per cent to Rs 21,739 crore.

Following a weak first half, the management lowered the production guidance across segments and increased the cost guidance. However, the management said the second half could be much better.

“We hope to have a stronger finish in the second half and deliver topline profitability in key verticals, having already seen a recovery in the commodity cycle, with prices rising across the commodity basket in the past 20 days,” CEO Srinivasan Venkatakrishnan told ET after the results last month.

The positive was the sharp reduction in total debt. Gross debt shrunk by Rs 11,000 crore and net debt by Rs 7,000 crore in the past one quarter. Net debt to EBIDTA is now 0.9.

Vedanta stock is now trading at 4 times EV/EBIDTA and less than one time price to book, near a 3-year low. With such valuations, strong balance sheet and a dividend yield of near 10 per cent, the stock offers a good risk to reward ratio for the investors.

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