Friday, March 24, 2017

One Year Results are Not Relaible

Picture shows number one in bold but with a cross and number five with a tick mark over it

"Do not take yearly results too seriously. Instead, focus on four- or five-year averages."
Warren Buffett

Hindustan Zinc Dividend Yield Translates to 18.43%

Picture shows the company logo of Hindustan Zinc Limited in black and white. The letters H and Z are depicted inside the Sun

On 22 March 2017, Hindustan Zinc Ltd. declared a special interim dividend of Rs.27.5/share which on a face/ nominal value of the share of Rs.2 translates into a 1375%. This translates into a stellar dividend yield of 16.43%, tax-free!

Our ‘Portfolio 2K15’ holds as on day (25th March 2017) 136 equity shares at an average holding cost of Rs.167.39 (current market price Rs.323.25). Therefore a dividend per share of Rs.27.50 translates into a dividend yield of 16.43% - the icing on the cake is that this dividend is entirely tax-free.

Let us look at the situation from a slightly different angle. The dividend per share of Rs.27.50 on an average holding cost of Rs.167.39 means that the cost of our investment has already been recovered to the extent of Rs.27.50 leaving the average cost holding at Rs.139.89 (167.39 – 27.50), which will further boost the future dividend yields, both regular and special.

Please note that for Hindustan Zinc, being a wonderful company it is, declaring such special dividends is becoming a regular habit. The company had declared a special dividend of 1200% or Rs.24 per share just last year!

After deducting the dividends earned from Hindustan Zinc after this Portfolio 2K15 has been created, the dividend yield after adjusting all the dividends so far amounts to a whopping 18.43%, tax-free.

Assuming that Hindustan Zinc will declare another special dividend next year to the same extent, our dividend yield after reducing all dividends from investment will be 22.60%! Please see the picture below.

Picture Shows the calculation of Effective Dividend Yield in the form of a table