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Stocks offer attractive dividend yields Investors should gradually build their portfolio.

By SHABBIR H. KAZMI
Oct 08 - 14, 2001

The local equities market, which witnessed crash after September 11, remained closed for a while and offered a bail out package, appears to have shown some sustainability. The dividend yield look very attractive but only for those who wish to take long positions. Though, the short term perspective look a little gloomy, analysts forecast for a rebound. On the economic front, the negative sentiments towards Pakistan, leading to lower exports may adversely impact textile companies. However, it is also expected that the Commerce Minister may convince the US authorities to ease quota restrictions.

First of all there is a need to examine the reasons for apprehensions which led to market crash. According to some analysts, it was an over-reaction because Pakistan would have faced even dire consequences had the government decided not to join the US in war against terror. Therefore, the probability of fresh sanctions was not only minimized but withdrawal of sanctions, imposed in the past, was made possible. This has resulted in improved forex reserve situation and reduced country risk.

On the macroeconomic side, the better agricultural output has the potential to provide fresh impetus to manufacturing sector, facing a cyclical downturn. According to some analysts, even if the present situation has not arisen, manufacturing sector was expected to register lower growth due to cyclic downturn. Therefore, the situation is not as precarious as perceived by many.

One may raise a point that at this point of uncertainty investment in equities may not be advisable. There are two ways of examining the situation: 1) potential return and 2) risk. However, analysts say that before looking at the potential return one should examine the risk factor first. In their views, though there is the fear of downturn the key sectors i.e. telecommunication, oil and gas, energy and services sectors seem more or less immune to the external factors.

The cost pushed inflation is bound to increase cost of production of virtually all the products. However, some of the recent GoP steps are aimed at minimizing this impact. While the GoP can only offer limited incentives, it must be kept in mind that cost cutting measures by the manufacturing units may not help in reducing cost of production. Only cost optimization efforts can help in beating the competition.

The only sector which may suffer, for the time being, is textile. However, analysts portray two possible scenario. The sector may collapse due to concentration of textile exports to the US and European Union or may witness a boom if the governments of respective countries decide to ease quota restrictions on made in Pakistan textile products. While many fears the first apprehension, many analysts strongly suggest that the US allies must reciprocate Pakistan's support by easing inflow of Pakistani products in their respective countries.

Coming to potential return, analysts say that dividend yields, at current prices look incredibly attractive. While the return on bank deposits touch around 11 per cent, the dividend yield on volume leaders exceeds 17 per cent. Saying this much it is also necessary to look at the performance of economy in the days to come. The stage seems to be set for writing-off some of Pakistan's external debts, fresh lending at exceptionally concessional terms and the GoP's larger spending on developmental projects to achieve popular support. It is a fact that massive spending on developmental projects by the government has a snowball effect on the economy.

Saying this much it is also necessary to reiterate that the economic managers should not commit the mistake of making inefficient use of fresh influx of aid, grant and concessional financing. A review of the performance of economy during the period of prolonged war in Afghanistan clearly demonstrates that while the sufferers were many beneficiaries were only a few. If the current economic managers are able to keep the national interest first in their minds, a complete turn around of economy can be achieved. At the same time Pakistan may be justified in asking the US allies to stop not only negative propaganda against Pakistan but also defuse the impact of whatever has been said in the past.

Pure Dividend Play Universe

   

3-Oct-01

Dividend Per Share

Dividend Yield

No.

Company

Price

FY-97

FY-98

FY-99

FY-00

FY-01

FY-99

FY-00

FY-01

1

Cherat Papersack

26.80

8.00

10.00

13.50

14.50

10.00

50.37%

54.10%

37.31%

2

Habib Bank Modaraba

8.40

1.50

1.50

1.50

2.15

2.25

17.86%

25.60%

26.79%

3

Hub Power

12.60

0.00

7.00

0.00

0.00

3.30

0.00%

0.00%

26.19%

4

Fauji Fertilizer

31.75

8.00

9.00

8.00

8.00

7.50

25.20%

25.20%

23.62%

5

GrindlaysModaraba

19.70

2.20

2.20

2.20

3.00

3.30

11.17%

15.23%

16.75%

6

Murree Brewery

27.50

3.00

4.00

6.50

4.50

4.50

23.64%

16.36%

16.36%

7

PTCL

13.10

1.75

1.80

2.00

2.25

2.25

15.27%

17.18%

17.18%

8

Sapphire Textile

37.00

1.50

5.75

10.00

21.20

6.00

27.03%

57.30%

16.22%

9

Lakson Tobbacco

62.75

4.20

3.80

4.20

10.00

5.50

6.69%

15.94%

8.76%

10

Honda Atlas Car

17.70

0.00

1.00

2.00

2.00

2.20

11.30%

11.30%

12.43%

                   

20.16%