Generosity to the shareholder: what companies should buy based on the dividend

Shares of companies regularly paying profit to shareholders as dividends remain one of the main investment ideas on the Russian market. This holds in particular in respect of the securities of companies with state participation. In April 2016, Prime Minister Dmitry Medvedev its decree raised the bar on the amount of dividends for state companies to 50% of net profit in accordance with IFRS or RAS (a large value), and this rule was laid down in the draft Federal budget for 2017. However, to rely on the generous payments from “Rosneft” or “Gazprom” this year is premature.

First, in January, Deputy Finance Minister Alexei Moiseev said that the government resolution on raising dividends of state companies to 50% of net income was returned for revision to the Ministry of Finance. And secondly, the same “Gazprom” in its budget for 2017-2019 recorded the amount of dividends at the level of 2016. “Given an active phase of realization of the Turkish stream, it is unlikely the company will receive 50% of profits on dividends,” — says Deputy head of Department of the analysis of share market IK “Veles the Capital” Vasily Tanurkov. It is also not known how many will pay to its shareholders “Rosneft”. The likelihood that a high dividend pay Bashneft and ALROSA, are much higher, says Tanurkov.

However, if you look at the current dividend yield (the ratio of the amount of the annual, interim and exceptional dividends of the previous year to the share price), it turns out that among the leaders according to this indicator, the state-owned company is almost not represented. So, as of February 6, the highest dividend yield showed an operator of container traffic “TransContainer” — a subsidiary of Russian Railways. In 2016 it paid dividends for the first half (95,76 RUB per share) and special dividends from retained earnings (251,84 RUB per share). Thus, when the cost of paper 3645 RUB at the close of trading on 6 February, the dividend yield TransContainer made up 9.52%. The three leaders also joined Mordovia energy retail company, with 9% and steel giant Severstal is 8.43 percent. It is noteworthy that besides the Mordovian ESK to the list of leaders got another mid-cap company is a diversified chemical company “Khimprom” (dividend yield of 7.01%).

What’s the catch

Part of the shares with the highest dividend yield refers to the illiquid securities of second and third echelons of the Moscow exchange. Such, for example, “TransContainer”, the Mordovian ESK and NGP. “Second-tier stocks can be very profitable, but you need to consider associated with investing in these instruments risks, especially high volatility and low liquidity in the deterioration of the situation, which the investor will be very difficult to sell your package or have to sell at a low price,” explains chief analyst of the management company “ronin trust” Andrey verholantsev.

The prospects for some stocks top dividend yield is very vague, agrees senior analyst Conomy and financial advisors Alexander Jansson. He warns investors on investments in illiquid securities. “In December 2016 Mordovian ESK paid dividends over the past nine months. Most likely, payments for the full year of 2016 it is possible not to wait. This suggests that in 2017 to her can hardly be regarded as generous to the payer”, — he reminded. The analyst also stressed that the amount of dividends paid Mordovian ESK was only 0,052 RUB per share. Given the low liquidity of securities, private investor should not count on a decent income, he concluded. The same applies to the rather expensive stock TransContainer, whose turnover on the Moscow stock exchange remain very low — only three securities as of 7 Feb.

In its turn, Tanurcov from IK “Veles Capital” notes that chasing high dividend yields is not always justified. “The profitability of ALROSA shares is about 10%, and papers of the second echelon can be more than 15%, but the risks are several times higher,” he says. On the market, according to him, is enough stock of large companies with high profitability that much more attractive to investors in terms of risk/yield. “To buy securities of the third echelon, you need to have extraordinary expectations for growth of stock prices”, — the expert concludes.

What to buy

Chief analyst at VTB24 Stanislav Kleshchev said that when you buy dividend securities to focus on the dividend payments over a long period of time. However, companies must also be reasonable grounds for the growth of the dividend stream in the future. “If the choice is between the papers of the first and second tier, the factor of liquidity and a high level of corporate control “chips” in my opinion, outweighs a few percentage points of additional dividend yield among individual representatives of the second echelon,” he says.

Interesting second-tier stocks analyst UK “the alpha-the Capital” Andrey Shenk calls of securities of companies in the energy sector. However, it is not advised to buy a single stock — instead, it is better to make a portfolio. “Many companies over the investment, and at current rates they will be able to pay investors a dividend of 8%,” he says.

A good yield can bring the action “RusHydro” and FGC “UES”, “rosseti” and the smaller companies, such as Mosenergo. Schenk also says that a good investment option will be paper manufacturers of fertilizers “FosAgro” and “Akron”. In addition, these shares can be a good defensive asset in case of weakening of the ruble, he said. Investors can look to the stock black steelmakers, which are likely to pay high dividends — such, according to Schenk, will be NLMK and “Severstal”.

Papers of the third echelon is to buy very carefully and not to concentrate on them when compiling the portfolio, the expert is convinced. Verholancev of “ronin trust” recommends in this category to pay attention to the preferred shares of Lenenergo and Lenzoloto, which can ensure a dividend yield of about 12% and 14% respectively.