Stock To Buy For Dividend Of 1400%, Low Valuations, Attractive Prospects

The shares of Hindustan Petroleum have fallen from 52-week highs of Rs 349 to the current market price of Rs 240, which makes it an attractive stock to buy at the current levels.

Financial performance can improve going ahead

One of the big reasons to be recommending the stock is that we believe that crude prices would eventually fall. Two things are likely to happen. One is that the Ukraine and Russia war is finally going to end no matter what, and hence crude prices could start coming down gradually. Secondly, with interest rates likely to go up substantially from current levels, we believe that economic growth around the world is likely to come down. This means we could see its impact on crude prices, which could be heading lower. When that happens, be rest assured that companies who buy crude oil like HPCL would benefit. This makes us optimistic on the stock of HPCL going ahead.

Low on valuations, attractive on dividend

The company's shares are attractive for those willing to buy the shares for long-term. The company reported an EPS of Rs 44.94 for FY 201-22. Now, this discounts the share price about 5 times. This means the stock is available at a price to earnings ratio of just 5 times, its trailing EPS. We do not see the prospects of HPCL changing too much in FY 2022-23 to warrant such a low discounting.

For the quarter ending March 31, 2022 the company reported a profit 40% year-on-year drop in net profits to Rs 1,795 crore on weaker marketing margins. The sales revenue jumped 24% from a year earlier to Rs 104,942 crore in the Jan-March period on higher prices. The gross refinery margin (GRM) was $12.44 per barrel for the quarter compared to $8.11 for the same period in the previous year. Going forward we do believe that margins should improve as crude is unlikely to stay elevated through the course of the year.

Good on dividend yields

The stock of HPCL comes with a dividend of Rs 14 per share declared by the board of directors. This would reduce the acquisition cost for investors even further. The stock price is currently at Rs 240, which means a dividend of Rs 14, reduces the cost to Rs 226. The dividend yield on the stock currently works to around 9%, based on last year's dividends. The company in the past has declared buybacks and bonus and we believe that the trend may continue. Overall, the shares are under valued and offer good dividend, which makes it attractive. Having said that, if market sentiments are not too strong, we may see the stock move in tandem with the markets.

According to Siddhartha Khemka, of Motilal Oswal Financial Services, rising inflationary pressure, continuous FIIs selling and rupee depreciating to all time low have turned investors pessimistic in the near term.

Disclaimer

Investing in stocks is risky and investors must exercise caution. Greynium Information Technologies Pvt Ltd, the author and the broking house are not responsible for losses based on the article.