Steel Authority of India might be a steal

Published Wed, 04 Jan 2012 13:30 CET by

Starting January 15, 2012, foreign private investors are welcome to invest in India's stock market. This comes at a moment where the SENSEX lost about 25% of it's value in the last 12 months. The government is trying to make the country more appealing to foreign investors to stabilise the market. Up until now, the only way for foreigners to invest in Indiais by purchasing index or mutual funds.

Even in a bad economy, dividend investing is a good strategy for a steady return. That steady return is only achieved when the dividend is sustainable. An important measure of dividend sustainability is the payout ratio. A payout ratio of more than 80% might be an indication that the current dividend payout can't be sustained.
At the moment, the top 5 dividend yielding stocks on the National Stock Exchange (NSE) are Hero Motocorp, Tata Steel, Bharat Petroleum, Bajaj Auto and Steel Authority of India (SAIL). Looking at the dividend payout ratio, only the two steel producers Tata Steel and SAIL look interesting.

Tata Steel

Tata Steel

Steel Authority

Comparing growth rates for both companies:

Name Dividend growth rate (5 years) EPS growth (5 years)
Tata Steel 0.87% 9.22
SAIL 3.71% 4.23

Steel Authority of India, while not having a huge dividend yield, might be a steal at its current price.

SAIL prices last 5 years
Stock name Dividend Yield
Tata Steel 4.91
Bharat Petroleum 4.71
Bajaj Auto 3.62
Hero Motocorp 3.57