Thursday, January 29, 2009

Taking with left hand and giving with the right?

I was wondering about business model of a company, Varun Shipping. The company's dividend yield is around 11% if we consider it paid 50% or INR 5 last year and the price today is just INR 45. Where is all this money coming from? If you look in the balance sheet of the company, it is coming not from the business but from bondholders. The company has paid dividend of 16%, 30%, 45%, 45% and 50% over the last 5 years. The total payout amounts to INR 264.4 Crore including the corporate dividend tax. During the same time, the company's total debt increased from INR 260.33 Crore to INR 2200.82 Crore an increase of around INR 1940 Crore. This is not the case with just Varun Shipping. Most of the shipping companies operate with this model only.
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1 comment:

Dwarak Ethiraj said...

Profit is used partially to pay dividend and fund expansion. Debt is a consequence of funding expansion, which is also serviced from profits. This is common to business in general, and an efficient means of using money.

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