For those with a long term outlook, Infosys Ltd (
INFY
,
quote
) is a dividend paying stock with a great deal of appeal for growth
and value investing that will rebound from its current decline.
[caption id="attachment_56668" align="alignright" width="300"
caption="Infosys is one of India's most important technology
stocks."]
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Based in Bangalore, India, Infosys, like other high tech stocks
in the consulting and service sector such as Oracle (
ORCL
,
quote
) and Hewlett Packard (
HPQ
,
quote
), has a dividend income to enhance its total return. With a profit
margin of 24.54%, Infosys is far superior to Hewlett Packard, whose
profit margin is only 4.21%. The return-on-assets is stronger for
this dividend paying stock than that of Oracle or Hewlett
Packard.
On a quarterly basis, sales growth and earnings-per-share growth
are both rising for Infosys. For this year, earnings-per-share
growth is up by 14.40%. Over the next five years,
earnings-per-share growth is expected to rise by 14.65%. For the
first quarter of 2012, profits for Infosys rose by 33%, in line
with analysts' expectations.
In addition to the quarterly growth in profits, sales and
earnings-per-share, Infosys is adding employees. According to a
Morgan Stanley research note, Infosys "...has hired ~10k laterals
(discretionary hiring) in the last two quarters. This is one of the
highest additions historically and stronger discretionary hiring
despite corroding revenue expectations is difficult to comprehend
in our view."
As Infosys Ltd a bullish price-to-earnings growth (PEG) ratio of
0.99, the additional hiring is not "difficult to comprehend." The
price-to-earnings ratio at present for this dividend paying stock
is 14.54, with it projected to fall to 13.22. By contrast, the PEG
for Oracle is 1.22. For Hewlett Packard, the PEG is 1.37.
Recent mixed earnings and a reduced forecast
has Infosys down in recent market action
. That should be looked upon as a buying opportunity for strong
total returns in the future. The dividend payout ratio is just
29.20%, so there is plenty of cash flow to increase the dividend or
initiate stock buyback programs. With no debt, the increasing
earnings from this dividend paying stock will reward shareholders
with greater earnings, as a profit margin of 24.54% will
actuate.
Now trading around $39.00 a share, the mean analyst target price
for Infosys over the next year is $50.10. As the stock has a high
beta of 1.22, there should be above average movement in the share
price to allow investors to buy on the dips at an even higher
dividend yield with a more favorable price-to-earnings ratio.
In addition, growth is declining in India so the
country's stocks are out-of-favor in the current market
environment,
as manifested by the current low price in the India Fund (
IFN
,
quote
), a closed end fund. Eventually this too will reverse, as will the
share price decline for this dividend paying stock.
