ITC stock’s dividend play: Over 5% dividend yield, modest valuation; analysts say ‘buy’

ITC’s internet revenue in January-March quarter fell 1.28% on-year to Rs 3,748 crore.
(Picture: REUTERS)

ITC share worth fell 2% on Wednesday morning to commerce at Rs 210 per share, after the corporate reported a fall in fiscal quarter internet revenue, largely in keeping with expectations. ITC’s internet revenue in January-March quarter fell 1.28% on-year to Rs 3,748 crore. Revenue fell regardless of a pointy 24% bounce in gross income in the course of the quarter. FMCG-to-hotels conglomerate ITC additionally introduced a closing dividend of Rs 5.75 per share, taking the overall dividend for the total fiscal yr to Rs 10.75 per share. Outcomes have been largely in keeping with estimates of analysts, who keep a bullish outlook for the inventory on the again of a wholesome dividend yield and cheap valuation.

Phase-wise efficiency

-In the course of the quarter, ITC’s cigarette enterprise income rose 14% on-year to Rs 5,859 crore. Cigarette volumes in the direction of end-FY2021 practically touched pre-Covid ranges.
-FMCG enterprise reported a progress of 16% from the earlier yr with revenues clocking Rs 3,687 crore.
-ITC’s lodge’s phase noticed restoration from the earlier quarter, however the efficiency was down 38% on-year. Income stood at Rs 287 crore.
-The agricultural enterprise phase noticed income progress of 79% at Rs 3,368 crore.

Wholesome dividend yield

ITC’s board accredited a closing dividend of Rs 5.75 per share together with the monetary outcomes. With this the corporate’s dividend for the total monetary yr 2021 stood at Rs 10.75 per share, translating to a dividend yield of 5.07%. “ITC has all the time been a gorgeous dividend wager for buyers,” Vishal Wagh, Head of Analysis, Bonanza Portfolio informed Monetary Categorical On-line.

ITC has elevated its annual dividend payout over time:

– FY 2020-21: Rs 10.75/share; Complete payout Rs 13,230 crore
-FY 2019-20: Rs 10.15/share; Complete payout Rs 8,422 crore
-FY 2018-19: Rs 5.75/share; Complete payout Rs 7,486 crore

Axis Securities expects the annual dividend paid to extend to Rs 15,078 crore by monetary yr 2022-23.

Outlook

Kotak Securities — ‘Purchase’; Goal Worth: Rs 257

Kotak Securities has trimmed FY2022-23E EPS by 2-5% however nonetheless has a Purchase name on the scrip. “ITC presents a mixture of cheap valuations (cigarettes enterprise buying and selling at 8-9X PE at CMP), wholesome dividend yield (5% at CMP), and the promise of sturdy LT progress in FMCG.”

Axis Securities — ‘Purchase’; Goal Worth: Rs 260

“We’re enthused with cigarette quantity restoration/normalization, improved break-even in inns (on a lot decrease revenues) and a structural uptick in FMCG revenues/margins.” … “Strong dividend/FCF yield of 5% stay key attraction.”

Sharekhan finds the cheap valuation and robust dividend yield making the inventory enticing. “Scale up within the efficiency of the non-cigarette FMCG enterprise and margin enchancment could be triggers for the inventory within the medium to long run. Furthermore, robust money flows and cheery dividend payout make it a superb wager within the present unsure atmosphere,” Sharekhan mentioned.