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Investors should not live by yield alone: Analysts
With some companies paying fairly high dividends despite slumping profits, analysts warn investors that they should consider more than just yields in making investment decisions.
Tuong An Vegetable Oil Joint Stock Company (TAC), for instance, has announced a dividend of VND2,000 per share despite posting a modest profit of VND11.8 billion (US$677,000) last year, or a mere 12 percent of its guidance figure.
In 2007, the HCMC-based company, which makes and trades edible vegetable oils and fats, had earnings of VND125.7 billion ($7.20 million).
The fall in last year’s profit means TAC’s earnings per share has fallen to VND634 from VND6,623.
To pay the dividend, the company will have to dip into its retained earnings.
In 2008, TAC’s cash and deposits dropped to VND80 billion from VND364 billion. Its total assets fell to VND686 billion from VND837 billion.
But investors, surprised by its dividend announcement on the Ho Chi Minh Stock Exchange’s website on March 5, preferred to pick up TAC shares from the next day onwards, pushing up their price to VND22,800 by Thursday.
Last December, Nam Viet Corporation, the country’s biggest catfish processor, also surprised investors by paying a dividend of VND1,800 per share.
Though the dividend was not too high compared to other listed companies, it was impressive considering the company, based in the Mekong Delta province of An Giang, posted a profit of VND106 billion ($6.1 million), or only 32 percent of its projection.
Nam Viet too used retained earnings for its payout.
Ken Tai, a technical analyst at Kim Eng Securities, said investors should consider dividends together with a company’s operations.
A company which pays low dividends but uses the money to improve its business is a better bet than one paying high dividends and operating ineffectively, he said.
He also warned investors to be careful with companies borrowing to pay dividends.
Huy Nam, a Ho Chi Minh City-based independent equity analyst, said though paying dividends out of retained earnings is normal, investors should carefully consider companies’ business prospects.
Dau Tu Chung Khoan
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