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What happens when you go behind DIVIDEND YIELD ignoring GROWTH...

Educational thread based on learning from Mr. Market...

No recommendations..

Case 1 - COAL INDIA

In 2017 approx dividend Rs. 20 >> Price ~250; Yield 8%..

You might think its better than FD+tax free

(1/n)
Next year dividend ~16; Price in 2018 ~270; Yield ~6%..

You say not bad...interest rates are down...so still better than FD...

You see bit of current growth in PAT and say to yourself..market is wrong...I am SMART :)

(2/n)
Fast forward in 2019...price ~220, Dividend ~15...Yield ~7%...not bad...still beats FD...

Growth still ok...you say...Acche Din Ayenge...console yourself with dividend yield

(3/n)
You enter 2020....and as always market is smart most of the times

Price - 120; Dividend - 12; Yield - 10%

You still feel good if you did not get it...wow 10% yield is superb.

TTM PAT growth negative 22%....share price almost half...

Think yourself: Did you make money?

(4/n)
Another company and I was invested in it few years back (no positions)

Ambika Cotton...capex planned but took ages...I thought still giving 3-4% yield..not bad..

Excellent management, Excellent products..

Hardly any growth, difficulty to do capex, sector tailwind

(5/n)
In 2016 share price at 800 Rs.; EPS 72 Rs....

Fast forward 2020: share price at 700 Rs.; EPS 76 Rs.

5 year profit CAGR >> 0%

(6/n)
Case 3: ITC

High RoE cigarette business suffering...growth tapering...govt finds it lucrative to tax these companies heavily..

Price in 2016 ~250; Dividend >> 8; Yield ~3.2%

Fast forward 2020

Price 185; Dividend >> 10 Rs. Yield ~5.5%

5 years PAT CAGR > ~10%

(7/n)
What are the lessons here:

As an investor, growth and reinvestment of cashflows at high ROCE is what creates compounding engine for companies

Think about...

Why dividend is increasing or yield is high?

Due to lack of re-investment opportunities?

Headwinds in Industry?

(8/n)
Is the sector sunset sector? Is company just barely able to survive?

If it's re-investing cashflows, is it in high RoE segment or dull segment that sucks capital (eg. Hotel, Infra etc.)?

Is company facing too much of competition?

Is moat getting eroded?

(9/n)
If current growth is decent, why is market pricing company like this? What about future? Can I see good growth visibility? What are the triggers?

If you want to learn more...you can join my masterclass >> technofunda.co/webinar

(10/10)

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More from @MashraniVivek

1 Apr
Lessons of bull market....thinking to create a thread where I will keep posting on euphoria phase we all had been into.

No offense to anyone, we all are human and we make mistakes, just for serious learning.

1st one - euphoria on housing finance

(1/n)
rakesh-jhunjhunwala.in/after-dolly-kh…
Second: Quest of multi-baggers in microcaps in 2017.....even after fall people had contrarian views that this space will bounce back...

(2/n)

rakesh-jhunjhunwala.in/24-micro-cap-m…
This just a snapshot of kind of value destruction that has happened in microcap space...

Source: @screener_in

(3/n)
Read 12 tweets
12 Mar
Was studying some historical falls to draw some meaningful patterns if any, let's take 2000 dotcom crash...Nifty fell from highs of ~1800 to nearly ~850 i.e. 50%+ down...and initial falls were not as severe as currently what we are witnessing + it had multiple pullbacks (1/n)
(2/n) RSI gave multiple oversold signals, infact premature and after each signal it kept falling 15-20% more...again with multiple tiny pullbacks...again note that to breakeven 50% fall you need 100% upmove....200 WMA were meaningfully broken..now let's take example of 2008
(3/n) In 2008, from highs of ~6250 nifty fell to ~2250, almost 60%+ fall...again with multiple pullbacks & some really sharp moves at the end of fall...again RSI near oversold zone multiple times..200 WMA broken meaningfully..remember to recover 60% fall you need ~3x to breakeven
Read 6 tweets

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