Can Vedanta investors expect another 10,000% dividend in FY25?

Imagine you’re able to generate a growing source of monthly income. Month after month, steady payouts roll into your bank account. The best part? You don’t need to do anything. That’s the power of dividend paying stocks.

A good dividend payer will:

• Generate regular income
• Grow the income over time
• Run for a long time without needing a lot of maintenance

I always advise my friends that each company they invest in should pay regular dividends, which they should consider part of their monthly income. Ultimately, all these companies will work together to keep their passive income running with consistent payouts. All they have to do then is watch their wealth grow as the power of compounding plays out.

If you keep reinvesting what you earn, your machine will eventually produce a lot more income for you, even while you sleep.

So, which would be your go-to dividend stock in the current market? I'm pretty sure that just like any wise investor, you too would choose to invest your hard-earned money in a large-cap stock with a track record of paying enormous dividends consistently.

Dividend giant

One such stock that has rewarded investors handsomely over the years while also offering decent growth is Vedanta. The company recently announced a hefty payout of ₹20 a share as its third interim dividend for FY25.

Its track record on dividends shows the company has never disappointed investors for the past three decades. That’s right. Vedanta has been paying ever-increasing dividends since 1994.

The company shattered all records in FY23 when it paid a 10,150% dividend on its face value, amounting to ₹101.5 a share.

But can it repeat this feat in FY25? It has already declared or paid three dividends amounting to 1,100%, 400% and 2,000% ( ₹11, ₹4 and ₹20 a share in rupee terms) for the current financial year.

Vedanta is the sole producer of nickel in India, having acquired a nickel and cobalt plant in Goa. Over the past two decades it has rewarded its investors with more than ₹97,000 crore in dividends. Take a moment to process this.

Here’s take a look at Vedanta’s dividends over the past 20 years.

Starting with a modest dividend of 20% in FY05, the company increased its payout exponentially to 357% in FY23 and 259% in FY24.

In FY23, the company made history by making the largest aggregate dividend payout – ₹37,570 crore – by an Indian company in a single financial year.

Recently, it announced another massive dividend of ₹20 a share – 2,000% on a face value of ₹1 per share – for FY25, amounting to ₹7,820 crore.At the current stock price of ₹463, the dividend yield works out to 6.3%.The record date for the payment of this interim dividend is 10 September.

With this, Vedanta has now paid ₹35 a share as dividends to shareholders so far this financial year. These dividends may have come at a cost, though, as according to reports, Vedanta has raised close to ₹20,000 crore through various methods in recent months, including dividends from its subsidiary Hindustan Zinc, selling shares of Hindustan Zinc, and selling its own shares to institutional shareholders.

Over the years, the company has rewarded shareholders with more than just dividends. In the 10 years since September 2014 Vedanta’s stock price has increased at a compound annual growth rate (CAGR) of 5.3%. For an investor looking for stable returns from large companies, 8% to 10% a year is considered a reasonably good return over the long term.

Growth prospects from demerger

Vedanta’s stock has been a hot topic among stock investors ever since it announced restructuring plans and the demerger of its businesses.

The company’s lenders recently approved the proposed demerger of the business into six independently listed companies. Shareholders are expected to receive one share each of the newly listed entities for every Vedanta share they own. The split is aimed at streamlining its operations and unlocking greater value for shareholders.

After the demerger, Vedanta will continue to hold the 64.92% stake it has in Hindustan Zinc and the stainless-steel manufacturing business. It will also own the upcoming semiconductor and display businesses.

This restructuring is expected to simplify the group's complex structure, making it easier for investors to directly access pure-play opportunities and potentially drive multiple expansion over the long term.

The new structure could also play a crucial role in addressing Vedanta's substantial debt burden. According to media reports, Vedanta’s gross debt, excluding leases, stood at ₹78,000 crore as of the first quarter of FY25. By creating separate entities, Vedanta could be better positioned to manage and reduce its debt.

As India’slargest aluminium company, Vedanta is investing heavily in expanding its aluminium capacity to take advantage of the growing demand for these products. Competitor Hindalco's managing director recently said demand for aluminium and copper remains strong.

Vedanta is looking to increase its profitability by acquiring coal mines for backward integration. It has plans for ₹42,000 crore of capital expenditure (capex) over the next year to increase backward integration and ramp-up aluminium capacity. Vedanta is looking to diversify its product portfolio and revenue streams by expanding its operations in iron, oil and gas, and power.

Given the growing demand for aluminium across various industries such as automobile, infrastructure, railways and construction, Vendata’s capex couldn't have come at a better time.

According to media reports, the company may be looking to enter lithium mining as well. It reportedly plans to explore lithium mining opportunities in Zambia and the Democratic Republic of the Congo. It has also expressed interest in surveying and excavating the lithium mine discovered in Chhattisgarh's Korba district, alongside other companies such as Adani Enterprises.

As far as future dividends are concerned, Vedanta's policy mandates passing on all dividends from Hindustan Zinc to its shareholders. This approach has rewarded shareholders over the years and also helped Vedanta Resources service its debt.

So far this fiscal year, Hindustan Zinc has paid two dividends amounting to ₹10 a share and ₹19 a share. It made a record dividend payout in FY23 and followed it up with a ₹5,490 crore payout in FY24. The company is expected to pay more interim dividends for the remainder of the year, and Vedanta will receive a huge chunk of these.

How has the stock performed in 2024?

Vedanta’s stock hit a 52-week high of ₹507 on 22 May 2024 and a 52-week low of ₹208 on 28 September 2023. It is up 93% over the past year, and 81% so far this year.

Here’s how it stacks up against its peers:

Conclusion

Investing in the most consistent dividend-paying stocks can be a great investment strategy as these stocks provide two sources of returns: regular income from dividend payments and capital appreciation from the stock price. This can help create substantial wealth over time.

The next time you have any doubts about compounding or are concerned about how dividends grow over time, just look at this chart.

Just as we saw with Vedanta, if you stick around over the long term, a tiny 1% yield in 2004 can gradually increase to the current yield of 6% or more.

That’s it for today.

Happy dividend investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com