9.8% Yield on Zee Entertainment Preference Shares – Should you invest?
Markets have been volatile in the past few weeks. Zee Entertainment Preference shares having maturity in 2022 year of Rs 1 each are trading at Rs 0.9 to Rs 0.91. Do you know that investment in 6% Zee Entertainment Preference shares can give you a tax free yield of 8.8% to 9.8%? This is a hidden gem now. How to get a high yield on zee entertainment preference shares? How to buy such Zee Entertainment Preference Shares from open market?
What are 6% Zee Entertainment Preference Shares 2022?
Zee Entertainment Enterprises Limited on its 21 anniversary of entering broadcasting business in 2013-2014 has issued 21 Preference shares for 1 equity shares to the existing shareholders. This preference shares at priced at Rs 1 and carry dividend of 6% per annum.
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Features of 6% Zee Entertainment Preference Shares 2022
- These preference shares have a face value of Rs 1.
- These carry a 6 % dividend. Means preference shareholders would get 6% returns by way of dividend which is tax free.,
- The current market price of preference shares is between Rs 0.9 to Rs 0.91 (NSE and BSE). Source ICICIdirect, screenshot below.
- The record date is 31st March every year and dividend payout would be done in 15 days, i.e. 15th April pertaining to dividend of the previous year.
- These preference shares are assigned as BWR AA+ by Brick Works Ratings India Private Limited which indicates a high degree of safety regarding timely servicing of financial obligations.
- These preference shares would get matured on 6th March, 2022. Till such time you would get 6% dividend on the Rs 1 face value of shares.
- Company has an option to buyback 20% of such shares every year starting from the 4th year of allotment. Since these are allotted in 2014, first redemption would start in Mar-2018 and goes till Mar-2022. In case company is unable to buy back every year, it would buyback at the end of the maturity cycle i.e. Mar-2022. Hence there is some kind of risk if you talk about liquidity, if you want to redeem with the company itself.
- You can sell these preference shares on the BSE/NSE. However, you may not get the full price. E.g. Rs 1 share value is now Rs 0.9 to Rs 0.95. If you want funds and you want to sell it, you need to sell at this rate only.
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How much yield you would get from these Zee Entertainment Preference Shares, if you buy now?
- Assume you buy these preference shares at Rs 0.91 (Source: ICICIdirect on 18-Feb-2016) for 1 Lakh shares. You would get this for Rs 91,000 (Rs 0.91 x 100,000) now.
- You would get 6% dividends every year from 15-Apr-2016 onwards till 6-Mar-2022 on Rs 1 Lakh worth of preference shares.
- If company bubacks these preference shares every year from 2018 to 2022 for 20% of the value, you would get overall returns of over 42% (simple terms) and 9.8% yield per annum. Though it indicates 6% dividend, with interim payouts and discounted share value of preference shares, you would get such high yield.
How much yield you would get from these Zee Entertainment Preference Shares, if company payout principal value only at maturity?
Assume that company would not buyback 20% every year from 2018, but they would payout 100% in 2022 at maturity.
- You buy these preference shares at Rs 0.91 (Source: ICICIdirect on 18-Feb-2016) for 1 Lakh shares. You would get this for Rs 91,000 (Rs 0.91 x 100,000) now. You would get dividends every year from 15-Apr-2016 onwards till 6-Mar-2022.
- Since the company would not payout from 2018 to 2022, but payout full 100% in 2022, you would get 8.8% yield per annum. This is due to the fact that your principal is not being paid in installments, but is paid only at maturity.
Also Read: How to identify high return dividend yield stocks for long term investments?
Should you invest in these Zee Entertainment Preference Share now?
These are available at attractive discount prices of 9% to 10%. You would get 6% dividend every year from 15-Apr-2016 where yield works out to be 8.8% to 9.8%. This dividend is tax free. If you are high tax bracket and willing to lock your money for next 6 years, you can buy such preference shares. You can still sell them on BSE/NSE, but at a discounted price. If your intention is to get highest tax free dividend, this is definitely a best bet. Alternatively, you can buy tax free bonds from open market, which are also available at discounted prices.
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Zee Entertainment Preference Shares
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Why it is trading at so much discounted price ?
current yield is 12% tax free !!!!!
whats a tax treatment for such investments
please advise on this situation