Tata Group Stock To Buy With A Low P/E Of 4.35 Times And Dividend Yield Of 4.4%

The fall in the markets have given investors an opportunity to buy into good quality stocks at reasonable price. Here is a Tata Group stock that is available at low valuations.

Buy Tata Steel stock for good dividends

The shares of this Tata Group company has many positives. The first is that the company recently declared a dividend of Rs 51 per share, hiking the dividend significantly from the previous years, thanks to profits soaring. This takes the dividend yield on the stock to 4.4%. The rising trend in commodity prices, including metals has pushed profitability of steel makers like Tata Steel higher.

Tata Steel reported 46.8 per cent year-on-year increase in consolidated net profit at Rs 9,756 crore for the fourth quarter of FY22, led by its European business. Steel prices in western markets rose steeply in the January - March period on tight supply and recovering demand. This has led to a solid performance in Tata Steel for the quarter ending March 31, 2022.

In the domestic market steel consumption improved by 4% QoQ driven by ongoing economic recovery. Consumers though remain watchful after price increases towards end of the quarter.

Tata Steel: Buy the stock at attractive valuations

The company ended the FY 2022 with an EPS of around Rs 270. This means the stock is trading at a p/e of just 4.35 times, based on the current market price of Rs 1170. Traditionally, commodity stocks like Tata Steel have received low discounting. However, if steel prices remain high for longer, there is a possibility that the financials could improve in the sense of the company repaying its debt. In fact, the company has significantly reduced its debt in the last few quarters, which is also a big positive for Tata Steel.

We expect the company's performance to continue to be good on the back of good automotive production especially in passenger and commercial vehicles, while infrastructure development and construction would also improve. If the ongoing Russia - Ukraine problems continues, it will lead to constrained traditional steel supply into Europe leading to renewed supply - demand imbalances from which Tata Steel would benefit.

Stock split to help retail investors own the stock

The board of the company has also announced a stock split in the Stock, which should help small investors buy the stock. The board has approved a stock split in the ratio 10:1. While the book closure of the same has not been announced the share price is likely to trade significantly lower after the stock split, allowing small investors to buy the stock Tata Steel, as the shares become ore affordable. Overall, we believe the company is on a strong footing owing to rising steel prices. The strong dividend and a stock split are other factors that we believe would help the company's stock in the future. However, the only risk for the stock price is the falling stock markets. Rising interest rates across the globe have led to investors selling stocks as interest rates across the globe move higher. If markets fall, Tata Steel stock could also move in tandem, and that is probably the only risk for the stock.