Payout-friendly firms' shares turn dearer

Dividend yield lowers as share price outpaces payout march.

Shares of dividend-paying companies have become costlier than before if the current average dividend yield of 1.44 per cent is any indication to go by.

Two years ago, the average dividend yield of listed companies was around 2 per cent, which declined to 1.95 per cent in 2004 and then to 1.44 per cent now.

Dividend yield is dividend paid (to shareholders) per share as a percentage of its market price. For instance, if a company's share is trading at Rs 100 and it announces a dividend of Rs 5, then its dividend yield works out to 5 per cent.

With the market prices rising faster than dividend payouts, dividend yield has been going down steadily. In the past three years, dividend payouts have gone up in a steady manner "" from Rs 22,452 crore in 2002-03 to Rs 27,402 crore in 2003-04 and further to Rs 32,667 crore in 2004-05.

However, the rise in market capitalisation of dividend-paying companies has been more spectacular. It has shot up by Rs 3,09,406 crore in 2003-04 and by Rs 806,405 crore in 2004-05.

As the market prices of most stocks increased in multiples during the last two years, the number of companies with a dividend yield of over 5 per cent has come down drastically.

A Business Standard Research Bureau study of 1,035 dividend-paying companies shows that only 73 firms have dividend yield of over 5 per cent and 55 others in the range of 4-5 per cent.

In contrast, 223 of the 777 dividend-paying companies were trading at a dividend yield of over 5 per cent in 2003. The number of stocks with dividend yield of more than 5 per cent dropped to 87 in 2005.

In the past, investment in high-yield stocks was profitable. For instance, 87 companies, which were trading at high dividend yield last year, gave returns of 50 per cent in the last one year. In this lot, 11 stocks appreciated over 100 per cent each and 13 gained between 50 per cent and 100 per cent each.

Of the 73 stocks in the latest list, 20 firms' market price appreciated over 33 per cent in last year. The high dividend yield stocks in the list include HPCL, Bongaingaon Refineries and Chennai Petroleum from the refinery sector.

Ecoplast, trading at Rs 19.35 on the Bombay Stock Exchange (BSE), has dividend yield of 7.75 per cent. It offered its shareholders 15 per cent dividend in 2005 and had paid 20 per cent dividend in earlier two years.

Lahoti Overseas, which paid 25 per cent dividend in 2005, has dividend yield of 7.65 per cent. The stock is currently trading at Rs 6.50 on the BSE. Indcap, which paid 10 per cent dividend in the last three years, has a dividend yield of 7.32 per cent. Similarly, IVP has dividend yield of 6.05 per cent.

Currently trading at Rs 36.29, it has paid 22 per cent dividend.

G G Dandekar, KSE Industries, Indo Rama Synthetics, Hipolin, IVP, Tata Sponge Iron and Abbot India are among the other stocks that have dividend yield of over 5 per cent. Jumbo Bag, Fairdeal Filaments, Ceejay Finance, Stanpacks (India), Swastik Fin-Lease, Allianz Capital, United Credit, Vimal Oil Foods and Bharat Bhushan "" other high dividend-yield stocks "" have appreciated over 50 per cent in value in the last year.