Is it time to nibble into PSU banking stocks?

Business

oi-Sunil

By Sunil Fernandes

Published: Monday, May 28, 2012, 9:21 [IST]

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.

GoodReturns.in

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