Money is made when you fool Mr Market
As I have noted many a times earlier, Mr Market is right most of the time, but not all the times. An investor makes a lot of money when he bets that the market is wrong and later it proves to be wrong. Let me take two examples here:
1. Blue Star in 2001. The company's average share price in 2001 was around INR 35. In the next 7 years, i.e. between 2002-2008, the company gave away dividends worth INR 96.5. Any retail investor who bought 1000 shares of Blue Star @ INR 35, would have got INR 96.5K as dividends in the next 7 years and today those INR 35K would be worth 750K (The company announced 5:1 split in 2006). In 2001 itself, company was giving away INR 5.5 as dividends, i.e. yield at INR 35 would have been 16%. Mr Market avoids companies with such a high dividendyield since it fears the company will cut the dividend or will go bust. Mr Market turned out to be wrong in this case.
2. CRISIL in 2001. The company's average share price in 2001 was around INR 100. In the next 7 years, i.e. between 2002-2008, the company gave away dividends worth INR 124. Any investor who bought 100 Shares of CRISIL got INR 12.4K as dividends in the next 7 years and his INR 10K would be worth 235K today.
Can I see these kind of opportunities today in Indian Stock market? Have a look at the top dividend yields page on Moneycontrol.
Next BlueStar or CRISIL?
As discussed in my previous post , I went through the list of high dividend paying companies. The criterion was to have a minimum yield of 5%. There were 336 companies matching the criteria. To find the next BlueStar or CRISIL, I eliminated companies with following critiera:
1. The company is very small. If it has revenue less than INR 100 Crore and/or profits less than INR 10 Crore. This removed 19 companies.
2. The company has a lot of debt, i.e. more than half its networth. This removed 161 companies.
3. The company is not paying dividend consistently. This include companies which paid special dividend to make yield more than 5%.
4. Companies whose business model can't be trusted to remain sustainable, i.e. Aftek, Gulf Oil Corp etc. This eliminated 8 companies.
5. The companies whose earnings will be negative this year. This eliminated 16 companies.
6. The company is a bank. This eliminated 10 companies.
I was left with a list of 71 companies to keep an eye on. Some of them include Royal Orchid Hotels, Mangalam Cement, Ador Welding, VST Industries, HCL Infosystems, Lakshmi Machine Works, GNFC, Plastiblends, etc. The companies in these list are from sectors ranging from Hotels to Cement, from Engineering to Tobacco, from IT to Fertilizers. Take your pick.
2. The company has a lot of debt, i.e. more than half its networth. This removed 161 companies.
3. The company is not paying dividend consistently. This include companies which paid special dividend to make yield more than 5%.
4. Companies whose business model can't be trusted to remain sustainable, i.e. Aftek, Gulf Oil Corp etc. This eliminated 8 companies.
5. The companies whose earnings will be negative this year. This eliminated 16 companies.
6. The company is a bank. This eliminated 10 companies.
I was left with a list of 71 companies to keep an eye on. Some of them include Royal Orchid Hotels, Mangalam Cement, Ador Welding, VST Industries, HCL Infosystems, Lakshmi Machine Works, GNFC, Plastiblends, etc. The companies in these list are from sectors ranging from Hotels to Cement, from Engineering to Tobacco, from IT to Fertilizers. Take your pick.
Source : http://www.indiavalueinvest.in
