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

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Updated: June 02, 2021 10:16 AM

ITC shareholders will receivee a dividend of Rs 10.75 per share for the financial year 2020-2021, translating to a dividend yield of 5.07%.

ITC share price, ITC dividendITC’s net profit in January-March quarter fell 1.28% on-year to Rs 3,748 crore. (Image: REUTERS)

ITC share price fell 2% on Wednesday morning to trade at Rs 210 per share, after the company reported a fall in fiscal quarter net profit, largely in line with expectations. ITC’s net profit in January-March quarter fell 1.28% on-year to Rs 3,748 crore. Profit fell despite a sharp 24% jump in gross revenue during the quarter. FMCG-to-hotels conglomerate ITC also announced a final dividend of Rs 5.75 per share, taking the total dividend for the full fiscal year to Rs 10.75 per share. Results were largely in line with estimates of analysts, who maintain a bullish outlook for the stock on the back of a healthy dividend yield and inexpensive valuation.

Segment-wise performance

-During the quarter, ITC’s cigarette business revenue rose 14% on-year to Rs 5,859 crore. Cigarette volumes towards end-FY2021 nearly touched pre-Covid levels.
-FMCG business reported a growth of 16% from the previous year with revenues clocking Rs 3,687 crore.
-ITC’s hotel’s segment saw recovery from the previous quarter, but the performance was down 38% on-year. Revenue stood at Rs 287 crore.
-The agricultural business segment saw revenue growth of 79% at Rs 3,368 crore.

Healthy dividend yield

ITC’s board approved a final dividend of Rs 5.75 per share along with the financial results. With this the company’s dividend for the full financial year 2021 stood at Rs 10.75 per share, translating to a dividend yield of 5.07%. “ITC has always been an attractive dividend bet for investors,” Vishal Wagh, Head of Research, Bonanza Portfolio told Financial Express Online.

ITC has increased its annual dividend payout over the years:

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

Axis Securities expects the annual dividend paid to increase to Rs 15,078 crore by financial year 2022-23.

Outlook

Kotak Securities — ‘Buy’; Target Price: Rs 257

Kotak Securities has trimmed FY2022-23E EPS by 2-5% but still has a Buy call on the scrip. “ITC offers a combination of inexpensive valuations (cigarettes business trading at 8-9X PE at CMP), healthy dividend yield (5% at CMP), and the promise of robust LT growth in FMCG.”

Axis Securities — ‘Buy’; Target Price: Rs 260

“We are enthused with cigarette volume recovery/normalization, improved break-even in hotels (on much lower revenues) and a structural uptick in FMCG revenues/margins.” … “Robust dividend/FCF yield of 5% remain key attraction.”

Sharekhan finds the inexpensive valuation and strong dividend yield making the stock attractive. “Scale up in the performance of the non-cigarette FMCG business and margin improvement would be triggers for the stock in the medium to long term. Moreover, strong cash flows and cheery dividend payout make it a good bet in the current uncertain environment,” Sharekhan said.

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