Moneycontrol Be a Pro
Get App
Last Updated : Aug 09, 2017 06:54 PM IST | Source: Moneycontrol.com

3 companies with high cash reserves which gave consistent dividends over 5 years

Our findings reveal that there were only 3 companies whose cash reserves were almost 80% of their shareholder's fund.

Ritesh Presswala @riteshpresswala
 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

Healthy cash flows are a prerequisite for discerning investors looking to add stocks to their portfolio. Hefty cash hoards help companies tide over difficult business cycles, even if they may not always be a big draw in a bull market.

To spot such candidates, we have used certain filters, cash holdings equivalent to nearly 80 percent of equity funds.

The other filters are:
1. Market capitalisation over Rs 1000 crore
2. Net Profit

3. Debt free

Close

Only three companies--Abbott India, Novartis India and Castrol India—fulfil all three parameters.

 

Exhibit10708072017rit

Such high cash holding companies can utilize their surplus cash for expanding their business, or reward their shareholders through dividends, bonuses and buybacks.

Dividend track record: Abbott India, Novartis India and Castrol India have a good dividend track report and has consistently paid dividends for the last 5 years.

Exhibit20708072017rit

We drilled deeper to check out how the company spends the cash that it earns through operations. And while cash flows have been strong, the gross block addition in each of the three companies has not changed much. This indicates that the companies are not investing enough back into expanding their business.

However, investors should bear in mind that companies with surplus cash may not necessarily be substantial outperformers, as evident from the chart below.

Exhibit30708072017rit

Two themes that seem common to the 3 companies:-

Conclusion 1 – Investors sought consistent fixed income (dividend) returns every year rather than significant price upsides

Conclusion 2 – Sales were more or less constant year on year for the past 5 fiscals, prima facie indicating that no substantial capacity expansions may have been undertaken, underscored by the flattish trend in the gross block figures as well. This can be mainly attributed to a greater percentage of profits being distributed as dividend. See chart below.

Exhibit40708072017rit



The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .
First Published on Aug 9, 2017 06:54 pm
Loading...
Sections
Follow us on
Available On
PCI DSS Compliant