Reliance announced a bonus issue of 1:1. Dividends were declared at Rs 13 per share. Whats changed?
During the years ended 31 March 2009 to 2003, Reliance has delivered earnings of Rs 103, Rs 135, Rs 83, Rs 68, Rs 54 and Rs 37 for a six year average of Rs 80 and a six year median of Rs 75.56. During this period dividends have been Rs 13, Rs 13, Rs 11, Rs 10, Rs 7.5, Rs 5.25 for a six year average of Rs 10.50 and a six year median of Rs 9.96. The long term payout ratio is 12.5%. Based on the long term payout ratio of 12.5%, a long term growth rate of 12% (in line with India long term GDP + Inflation expectations), I would value the stock at Rs 1,850 for an investor looking for an annualized return of 16% per annum.
Why the excitment about the bonus? After all if a company has 100 shares in issue and has a market cap of 100, it is worth 1 per share. Double the shares to 200 and all that happens is that shares become worth 0.50 each. But a bonus does have some interesting implications.
The first is that halving of the share price will make it more liquid; this tends to attract more buyers and results in stronger prices.
The second is that in India, normally the dividend per share is not cut following a bonus issue; which means the yield doubles. Suppose the Pre Bonus Share value is Rs 2,000 with a dividend of Rs 13. Post bonus you have 2 shares worth Rs 1,000 each with a total dividend of Rs 26. So thats an improvement.
Thirdly is understanding what the company is implying with the bonus issue. What Reliance is telling us is most interesting; it is saying that we expect a dividend of Rs 26 (per pre bonus share) to reflect a payout of 12.5% over the long term; they are expressing confidence in achieving median earnings over the next cycle of Rs 208. Now this is big news; if they achieve this, 6 years out Reliance shares could command a value of Rs 5,096 (i.e Rs 2,548 post bonus value); that is the value based on the long term payout ratio of 12.5%, a long term growth rate of 12% (in line with India long term GDP + Inflation expectations), for an investor looking for an annualized return of 16% per annum.
What the bonus means can differ for people. Some might view it as Reliance saying there are limited growth opportunities and so we are raising our long term payout ratio to 25%. My own view is that Reliance will maintain its 12.5% long term payout ratio; the journey for Reliance lies ahead not behind the company.
Reliance is a strong long term buy and persons other than buy and hold investors, can look for an exit value of over Rs 5,000 by 2014.
Reliance Industries Ltd Sponsored 144A Gdr equals 2 shares in Reliance Industries. It is lightly traded on the pink sheets and for that reason, it is not a GDR I would recommend to anyone other than a buy and hold in perpetuity investor. However exposure to the stock can be acquired via ETF's which have considerable exposure to RLNIY; and of course non resident Indians (NRI's) can buy the shares directly on the Indian National Stock Exchange or the Bombay Stock Exchage.
Source : StockTalks
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We all get bombarded every day with mails, morning briefs as to which stock we should pick and how will be the market trend today. Every time the brokerage houses will send the stock market tips> as if we all are playing a gamble and need the tricks as to how we can win it. And anticipating as to how to do stop loss and at least will make smaller profits. What most of the investor do is they consider short term trading as the long term investment and believe as to how it can be doubled in a day. Buying a stock just because the price is low and some stock market tip you received that this will boom in the market today. What most of us do is that we all trade with money which we can’t afford to lose but the market always says that invest only that money which is in excess to you. All of these are the big mistakes which we commit every day in spite of being reminded every time that we should complete our home work for the next day.
Things to Remember when invest in stock market: >
We believe that the fundamental says invest in those company about which you know completely, but that doesn’t mean you fall in love with a company and a particular stock just because you are familiar with it or it create news in the stock market every time. Most of us just try proving our fundamentals are right and for that we apply too many technical indicators on that stock. It’s not true that the stock will go according to its fundamentals and technical, many stocks behave opposite to their indicators, thus they do not guarantee as to whether it will go up or down.
Investors jump to penny stocks as they immediately boom in the market due to rumors what need to understand is that the Penny stocks are very risky, and on this basis make your strategy as to which one to pick from that lot and how much to invest . The portfolio of the investor should be constructed in such a manner that it allots weight age to different sector and the sizes of the stocks so that the diversification is there and the risk can be mitigated. Therefore the weight age of penny stocks in one‘s portfolio should not be more that the 15%. This is to minimize the losses and to accumulate the profits also.
Keep a watch on the industry of the particular stock. Most of the stock behaves according to their industry trend. Thus if in the budget the government committed to play large role in the infrastructure sector, all the stocks will go react as per the budget and the whole sector recorded the jump of 12% on the next day. But it might be the case that the industry is booming and the stock is going down, therefore along with Industry, Company information is also vital.
Past performance of any company doesn’t not hold true or affect its future performance. Many of the Indian stocks which were heavy weight in the past few years and were considered the blue chip companies in this market are either bankrupt or have become extinct in the market. Thus continuous performance analysis and evaluation is important.
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