Most retail investors when buying stocks focus more on capital appreciation than the potential of sustained dividend. That is why they should pay special attention to brokerage CLSA’s latest edition of Bits and Pieces
When asked what made him most happy about investing, legendary investor the late Rakesh Jhunjhunwala had once replied in jest, ‘When the dividends come in June’.
Most retail investors though when buying stocks focus more on capital appreciation than the potential of sustained dividend. That is why they should pay special attention to brokerage CLSA’s latest edition of Bits and Pieces by Damian Kestel.
In its weekly newsletter, the foreign broking firm reiterates that dividends make a significant contribution to total return over time. The classic example that it cites is Warren Buffett’s dividend bonanza over the years from Coca-Cola.
In 1994, Berkshire Hathaway received $75 million cash dividend from Coke. By 2022, the dividend had increased to $704 million. Given the total cost of purchase was $1.3 billion, the dividend yield comes to ~50 percent for 2022.
Noting this, CLSA calculated what the yield in 2023 would be on some Asia Pacific large caps if an investor was lucky enough to buy at a 15-year low and receive a 2023 dividend.
In the past ten years, the MSCI Asia Pacific index is up 18.8 percent in price. “But, if dividends were re-invested then the index would have been 57 percent higher,” according to the latest Bits & Pieces report.
Among names like Samsung, TSMC and Macquarie, India’s Tata Consultancy Services and ITC find a spot in CLSA’s list.
If an investor had purchased TCS stock at a 15-year low of Rs 103.5, he/she would stand to receive Rs 124 in dividend, indicating a yield of a whopping 120 percent.
Similarly, ITC fetches a yield of 36 percent on its 15-year low price which, in Ketsel’s words, is “not bad for a sin stock”. ITC’s dividend per share keeps rising under an improved capital allocation policy, which offers good support to the stock, according to the broking firm.
Another Indian stock that catches CLSA’s eye is PowerGrid. The company raised its dividend by 26 percent year-on-year to Rs 14.75 in FY23. Moreover, it also said in an analyst call that it does not intend to hoard cash which only means consistent dividend growth in coming years.
Though Vedanta is one of the highest dividend-paying stocks in India, CLSA highlighted in its report that it is more to do with cash requirement at the parent level to pay off debt rather than rewarding investors.
The bottom line: a dividend is a gift that keeps on giving. “Financial magic can occur when you invest in a company with a policy (and the operational means) of increasing its dividends and then go to the beach,” writes Ketsel.
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