Buying Stocks for Dividends: Tata Steel

I guess you folks are going to scream at me for being so old-fashioned.

Tata Steel [BSE: 500470 NSE: TATASTEEL]

Tata Steel has been one of my favorite stocks. In January 2007, when the Corus deal was announced the stock promptly fell to it's three year low at Rs. 407 a share. Right now, after rising a bit in the last few sessions, the current market price is Rs. 218 a share. Last year's tax free dividend [tax free for Indians] was handsome and should generate around 7% return on the current market price. With bank interests hovering in the region of 10% with a top 30% tax rate, they too come to around 7%. Tata Steel's year high is around Rs. 950 and if it reaches Rs. 407, which was it's three year low in January 2007, it can still generate a return of Rs. 190 or 90% from it's current price. So, a 90% return in the next two years is handsome and if the company can maintain some of it's dividends, we can still witness around 100% return in the next two years.

One should not forget that Tata Steel is the world's fifth biggest steel producer and it is the world's cheapest steel producer as well.