Vedanta vs. Hindustan Zinc: Which Dividend Stock Reigns Supreme?

In recent months, the Indian stock market has experienced a significant downturn, primarily driven by disappointing quarterly earnings and geopolitical tensions. Amid such market volatility, savvy investors are turning their attention to dividend stocks, a reliable source of consistent income. This investment strategy has proven effective, as numerous studies indicate that dividend-paying stocks often yield superior long-term returns compared to their non-dividend counterparts.

The Allure of Dividend Stocks

Investors often seek out dividend stocks, especially during uncertain economic climates. These stocks, also known as Dividend Aristocrats, are characterized by their ability to provide regular dividends that typically increase annually. Today, we’ll take a closer look at two prominent players in this sector: Hindustan Zinc and Vedanta, to determine which stock offers better dividend potential.

Overview of Hindustan Zinc

Founded in 1966, Hindustan Zinc has established itself as the world’s second-largest integrated zinc producer and the third-largest silver producer. As a subsidiary of Vedanta Limited, it plays a crucial role in the zinc, silver, and lead markets.

Operational Efficiency: The company boasts self-sufficiency in power, backed by its own thermal power plants and low-cost, high-grade zinc reserves.
Production Capacity: Hindustan Zinc can produce 1.12 million tonnes (MT) of metals, 16.52 MT of ore, and 603.1 megawatts (MW) of captive power.
Revenue Sources: Approximately 75% of its revenue is generated from India, with the remaining 25% coming from exports.

Insights into Vedanta

Vedanta is a multifaceted natural resources company involved in the exploration, extraction, and processing of various minerals and energy resources.

Diverse Portfolio: It engages in the production of zinc, lead, silver, copper, aluminium, iron ore, nickel, and oil and gas.
Market Leadership: Vedanta is the sole nickel producer in India and a leading crude oil producer, securing a dominant position in the iron ore mining sector.
Global Operations: The company has a robust presence not only in India but also in countries like Namibia, South Africa, UAE, Australia, and Ireland.

Market Comparison

When examining market capitalization, Hindustan Zinc leads with a value of Rs 1,802.5 billion, while Vedanta follows at Rs 1,712.9 billion.

Market Shares: Hindustan Zinc commands a 75% market share in zinc, while Vedanta holds 45% in aluminium production.
Stock Performance: Over the past year, Vedanta has outperformed Hindustan Zinc, posting a 62% return compared to 37% for Hindustan Zinc. Both companies have outstripped the Nifty 50 index’s modest 2.6% return.

Revenue Generation

Vedanta’s revenue streams are diverse, with aluminium contributing 39%, followed by zinc and silver at 25%, and other segments like copper and oil and gas making up the rest.

Growth Rates: In the last five years, Vedanta’s revenue has grown at a CAGR of 11.2%, whereas Hindustan Zinc’s revenue expanded at 9.3%.

Profitability Metrics

Profitability can be assessed through metrics like EBITDA and net profit growth.

EBITDA Growth: Hindustan Zinc’s EBITDA increased by 6.4%, while Vedanta saw a growth of 10.2% due to effective cost management and favorable commodity prices.
Net Profit Margins: Hindustan Zinc reported a net profit growth of 2.7%, in contrast to Vedanta’s recovery into positive figures driven by strategic acquisitions.

Dividend Payments: A Closer Look

Hindustan Zinc’s Dividend History

Hindustan Zinc has been consistent in its dividend payments since 2003.

Dividend Growth: The dividend per share rose from Rs 0.8 in 2003 to Rs 13 in the fiscal year 2024, with projections for Rs 19 in 2025.

Vedanta’s Dividend Track Record

Vedanta has also maintained a steady dividend payment history since 1994.

Dividend Figures: Starting with Rs 1.65 per share in 1994, Vedanta paid Rs 29.5 in 2024, with expectations for Rs 43.5 in the upcoming fiscal year.

Dividend Payout and Yield

The dividend payout ratio, which indicates how much a company pays out in dividends relative to its net profit, is crucial for investors.

Hindustan Zinc: Average payout ratio stands at 151.1%.
Vedanta: Slightly higher at 158.8%.

Dividend Yield Comparison

Hindustan Zinc: Average yield at 11%.
Vedanta: Higher average yield of 13.8%.

Debt Management and Financial Efficiency

When evaluating debt levels, Hindustan Zinc maintains a favorable debt-to-equity ratio of 0.3, compared to Vedanta’s 1.7.

Cash Reserves: Hindustan Zinc holds Rs 79.4 billion in liquid assets, positioning it well for future growth and dividend payments.
Return Ratios: Hindustan Zinc exhibits superior financial efficiency with an average RoE of 53.5% against Vedanta’s 32.7%.

Valuation Insights

Valuation ratios are essential for understanding a company’s market position.

PE Ratios: Hindustan Zinc has a PE ratio of 19.2, while Vedanta’s stands at 9.6.
PB Ratios: Hindustan Zinc’s PB ratio is 17.5, compared to Vedanta’s 4.

Conclusion: Which Stock to Choose?

Both Hindustan Zinc and Vedanta have established themselves as reliable dividend stocks, yet their futures diverge based on financial strategies and market conditions.

Hindustan Zinc appears to have a more stable dividend outlook, bolstered by low debt and strong cash reserves.
Vedanta, while innovative and expanding, may face challenges due to significant debt and fluctuating profits.

As an investor focusing on dividend stocks, it’s crucial to conduct thorough research on both companies’ fundamentals and governance before making a decision. Happy investing!