| Some great paying scrips |
And still the bear market continues. Even though many stocks have
fallen so much that they are now fairly valued -- or even undervalued -- investors are
afraid to buy. Perhaps they want to wait until first-quarter earnings are actually
announced or till the payment crisis is over, the political situation gets better etc. Or
maybe shareholders have been so traumatized by the Tech Wreck that they are content to sit
on the sidelines with cash. The list is never ending-but analysts across the board seem to
also agree that though the valuations look attractive, may be the market has as yet not
bottomed out and thus, may be one should wait and watch. Someday soon, money will come
flooding into the stock market fueling a powerful rebound. But that recovery may still be
several months away.
In the meantime, all investors can do is wait, making occasional additions to their
holdings. And since you may not see any capital gains –i.e- price rise, on new
investments until the second half of the year, it makes sense to consider stocks that
offer generous dividend yields -- at least you get paid while you wait. Many investors
think that dividends went out with disco balls. But it's actually possible to find stocks
that yield nearly as much as money-market funds pay.
Most stocks with such yields are shares of Old Economy companies. And because such stocks
closely track the business cycle, they are relatively cheap right now, offering the chance
for substantial capital gains over the next five years as well as current income. Here's a
brief look at two of them.
EID Parrys
EID Parry is a multi-product company manufacturing farm inputs (complex
fertilisers, single superphosphate, seeds, plant protection chemicals), sugar, acetic
acid, sanitaryware and wall tiles. Fertilisers and sugar are the main businesses
accounting for 50% and 22% respectively, pesticides-15% and ceramics-11%. The Murugappa
group has a controlling stake in AP based Coromandel Fertilisers, whose products, Paramfos
and Gromer are marketed by EID. The company has made a foray into neem-based pesticides.
In FY99 EID Parry, along with an associate company, acquired 95.96% stake in Cauvery
Sugars and Chemicals. Its two sugar plants have a capacity exceeding 0.1 MT of sugar per
year. To focus on expanding its business of sanitary ware, the company recently acquired
the entire shareholding of Johnson Pedder Pvt Ltd, which has an installed capacity of
10,000 tonnes p.a, making EID the largest player in this segment. In the sanitaryware
segment the company introduced new ranges – “Continental Range” and
“Aravali Suits”. The company's premium product in the ceramics segment
'Parryware' continues to command a leadership position in the market. EID is restructuring
its businesses by increasing its focus on core areas like fertilizers, sugar and
sanitaryware and selling off electronics and seeds divisions. EID has set up a downstream
unit to produce acetic acid as well as a 24.5 cogeneration facility at Nellikuppam to
utilize the bagasse generated by the sugar unit. EID Parry (India) Ltd is planning to sell
its ceramic tiles business to the 2140 mn H&R Johnson (India), which is a part of the
Rajan Raheja group. As per management the company plans to concentrate more on the
sanitaryware business in the future. For the last two years the company has been growing
at a steady clip and has been disbursing dividends of 70% (in 2000) and 60% (in 99). At Rs
64 per share the dividend yield works out to 10.93%, tax free. Investors who crave secure
and steady dividend yields can look at this company for investment.
Zodiac Clothing
The company was incorporated in ‘84 as a private limited company. In
‘92, three other companies—Zodiac Textiles and Apparel Exports, Multiplex
Packaging and Bangalore Knitwear were amalgamated and thus this company took its present
form. Zodiac Clothing Company Ltd (ZCCL) manufactures and exports ready-made apparels. The
company has 3 plants, two at Bangalore while the other is in Gujarat. The shirts unit in
Bangalore is a modern state-of-the-art plant with computerised German machines. It exports
most of its production to European countries. ZCCL has 3 subsidiaries—Mayfair,
Multiplex Collapsible Tubes and Zodiac Clothing Company SA, a Swiss subsidiary. Zodiac is
amongst the top 5 brands selling in domestic ties market. A critical success factor in
this segment is the distribution network of retailers. ZCCL being among the first
companies to launch branded clothes in the country, has a very strong distribution
network.
The Zodiac group is working on a major restructuring which involves transfer of Zodiac brand name to Zodiac Clothing Co Ltd from Metropolitan Trading Company, a closely held group company, and merger of some group companies. European Union and USA, two major cloth importers are expected to phase out import restrictions by year 2004, in terms of agreement signed at WTO. This means Indian exporters can export any quantity of clothing to these countries. These are also the major export markets for ZCCL. In the domestic market, ZCCL will focus on launching new products and increasing its distribution network by opening exclusive stores and selling products through retail showrooms. The company has been a regular dividend payer at 50% p.a. for the last two years (ending March 2000). At the current CMP of Rs 39 the dividend yield works out to 12.82% tax free which is attractive enough to merit investment.
Aru Srivastava
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