Is it time to nibble into PSU banking stocks?

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 Is it time to nibble into PSU banking stocks?
UCO Bank: Quotes, News
BSE 30.50BSE Quote0.55 (1.80%)
NSE 30.35NSE Quote0.25 (0.82%)
Syndicate Bank: Quotes, News
BSE 64.70BSE Quote1.2 (1.85%)
NSE 64.70NSE Quote1.35 (2.09%)
Public sector banking stocks (PSU) have all announced their results and have declared dividends. If you buy these stocks now, the dividend that you get from these stocks are likely to fetch you very attractive yields. Interestingly dividends are tax free and do not form part of the total income for tax purposes.

A few examples

If you were to buy shares of Indian Overseas Bank, at the current market price of Rs 81 (May 28, 2012), you are likely to get a dividend of Rs 4.5 per share, sometime perhaps in the month of July. The yield works to 5.62%, for a holding period of just two months, pushing the annual returns even further.

Similarly, if you buy the stock of Syndicate Bank which is traded at Rs 90 (May 28, 2012), you are likely to get a dividend of Rs 3.8 per share, translating into a yield of 4.31%. Similarly for United Bank of India, UCO Bank, Indian Bank etc., where the dividend yields work out between 3 to 5%.

The caveat

Of course, if the share price drops dramatically after you receive the dividend, you are likely to end up making losses.

Fundamentally, there have been worries on PSU banking stocks on non performing assets and lower net interest margins.

But, these may already be priced into the stocks which are attractively priced considering their price to earnings and and price to book value parameters. In the long term they might continue to fetch decent returns.

Disclaimer The views expressed in this article are those of the author and may not reflect those of Greynium Information Technologies Pvt Ltd, its subsidiaries and associates. The author has made every effort to ensure accuracy of information provided; however, neither Greynium Information Technologies Pvt Ltd, its subsidiaries and associates, nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to buy, sell in precious  securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author of this article do not accept culpability for losses and/or damages arising based on information in this article. 

Read more about: united bank, syndicate bank, iob
Story first published: Monday, May 28, 2012, 9:11 [IST]
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