Dividend Analysis of Tata Investment Corporation

In this article, I will perform an analysis of dividends of Tata Investment Corporation.

Tata Investment Corporation

Tata Investment Corporation invests in a diversified portfolio of quoted and unquoted securities of companies, including Tata Companies, which are engaged in various businesses with a history of strong operating and financial performance. To know more see here.

The Company’s primary sources of income consist of dividend income and net profit on sale of investments, and passes on ~50% of its income as dividends to its shareholders, and that is what interests someone like me. The stock is in fact, like a mutual fund in many respects.

In this post, I have tried to analyze the dividend behavior of the stock from three perspectives:
a. historical trend
b. historical volatility
c. estimated future dividends based on past trend and volatility

Tata Investment Corporation Dividend Historcial Trend

The long-term average dividend growth of Tata Investment Corporation has been around ~16% with a 4% standard deviation. In other words, assuming that the returns follow a normal distribution, there is a 97% chance that dividends will grow between 8% and 24%.

Also if one takes, longer rollinng periods, dividends have never declined on rolling periods greater than 3 years.

Tata Investment - 10 Year Dividend Growth

Tata Investment Corporation Dividend Growth Volatility and Predictability

Volatility is defined as the difference between Arithmetic Mean and Geometric mean (See: Pattu). From the table below it is obvious that Tata Investment Corporation has been a stable dividend grower and over longer terms its volatility has been zero. In other words, there may be the possibility of a high degree of predictability* (see disclaimer below).

Tata Investment - Dividend Predictability and Volatility

C. Estimate of Future Dividends

Tata Investment - Estimated Dividends for next 11 years

If the company is able to maintain its past performance (which it may or may not), it would have a dividend per share of more than Rs 80 by 2025. In terms of today’s price of Rs 600 or so, it would translate to a dividend yield on cost of 14%. A 14% yield, that too tax-free, is quite a high number, given that post-tax Fixed Deposit yields are not more than 6%! And please note, we have not even considered price appreciation.

Conclusion

Is the above scenario likely? I cannot say. Is it plausible? Yes, I would say because of the below two reasons:

a. The company has managed to grow its dividends at a clip of 15% year on year, both during economic booms and downturns, and there is no reason why it should not do so going forward.

b. The company invests in a broad spectrum of companies covering a wide gamut of industries and is in a way a good representative of almost the entire economy. Even assuming that the economy manages to grow at a mere 5% for the next 10 years (which it has), the markets as a thumb-rule would grow at 3 times or 15%, and hence the dividends would also grow at the same clip.

For those interested in a complete analysis of various aspects of the company from a fundamental standpoint, one may refer to Safal Niveshak who has also done a very detailed analysis here in his usual common-sense, jargon-free and methodical style.

Disclaimer

a. The analysis provided below might be completely accurate or absolutely incorrect. Either way, I do not accept any responsibility for situations arising out of usage/ non-usage of the below data.

b. Past should not be used to predict the future, just as one should not drive by looking at the rear-view mirror.

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A Few Last Words

Before making any investment decision, please contact your financial adviser.

I do not own this stock.

I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. I do not offer any opinion concerning securities or public offers. Whatever analysis I provide is through public media only on Mkerj. I am not covered under RA Regulations.

I have provided this article for educational purpose only.

I hope you found this article onDividend Analysis of Tata Investment Corporation useful. If you have something to add please leave a comment in the post. Please feel free to contact me.

Subhodeep Mukhopadhyay

I am a Management Consultant in the Education Sector. In my previous corporate career, I have worked in Banking, Private Equity and Software industry. I am an MBA in Finance/ Computer Engineer and enjoy doing equity research and financial analysis in my free time.

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