Investing in NPL: Balancing Yield with Risk

Nishat Power Limited (NPL) has garnered attention for its remarkable trailing twelve-month (TTM) dividend yield of 30.56%, positioning it as a standout among 98 companies on the Investor Lounge screener. With a current share price of PKR 37.3, investors are keen to assess whether this high yield signifies a lucrative opportunity or conceals underlying risks.

Dividend profile

In the fiscal year 2024, NPL distributed dividends totaling PKR 11.00 per share, comprising a final dividend of PKR 5.00 and interim dividends of PKR 2.00 each across three quarters . This payout translates to a TTM dividend yield of approximately 30%.

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Financial performance

Despite the attractive dividend yield, NPL reported a negative Earnings Per Share (EPS) of PKR -1.64 for the TTM . This indicates that the company is currently unprofitable, raising concerns about the sustainability of its dividend payouts.(investing.com)

Valuation metrics

• Price-to-Earnings (P/E) Ratio: Negative, due to negative earnings.
  
• Price-to-Book (P/B) Ratio: Approximately 0.51, suggesting the stock is trading below its book value
  

These metrics imply that while the stock appears undervalued, the negative earnings warrant caution.

Future Outlook

Analysts have set a price target of PKR 46.00 for NPL, indicating potential upside from the current price . However, the company’s negative earnings and high payout ratio suggest that future dividends may be at risk if profitability does not improve.

While NPL’s high dividend yield is enticing, the company’s current unprofitable status raises questions about the sustainability of such payouts. Investors should weigh the attractive yield against the financial challenges and consider the potential risks before investing.

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⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →