Large cap stocks are the shares with a large market capitalization. There are many individuals who prefer buying into the large cap stocks as they are much safer and less volatile.
It is important to remember that when the markets fall, large cap stocks fall to a smaller extent, as compared to small and midcap stocks. This is why they maybe preffered.
Read what is large cap stocks and difference between large cap, small cap and midcap stocks here
REC is a government owned company that is engaged in financial services catering to the power sector. It caters to state power utilities, private producers, central power sector units etc.
At a time when there are state elections and also elections to the Union Government, you would want to play it as safe as is possible, as stock markets could be volatile.
REC can be a relatively safer stock in a falling market, thanks to its dividend yield. We are not saying that the stock may not fall, if the markets drop, however, it can fall to a lesser extent, thanks to its dividends.
In 2018, the company has declared dividends twice - one in Feb 2018 of Rs 7.4 per share and the other of Rs 1.75 later in Sept, 2018. Now, these dividends add to Rs 9.15 per share. If you buy the share at Rs 102, your dividend yield works to 9 per cent.
Even banks are not offering FD yields of 9 per cent. Also, bank deposits are taxable, while dividends are tax free up to Rs 10 lakhs.
Now, if you go by the previous history of dividends of REC, you realize that the company has paid even higher dividends in 2016 and 2017.
Cheap on valuations
REC surprised with a good set of quarterly numbers for June 2018. The company's net profits surged to Rs 1,468 crores from Rs 834 crores in the previous quarter.
The EPS for June 30, 2018 was Rs 7.44. Even if the company does an EPS of Rs 18 on a conservative basis for 2018-19, the stock is trading at a p/e just 5-6 times.
The anticipated dividend in the month of Feb-March, may push the stock higher. The shares of REC have fallen from high levels of Rs 184, to the current levels. The price to book is also 0.70 times. REC is a good large cap stock to buy.
We like Coal India for a number of reasons. The first and the most important is that even if the stock falls, the dividend that ones gets easily compensates for any downward risk in the stock.
At the current market price of Rs 272, the dividend yield itself is a healthy 5 per cent. This dividend is enough to compensate in case there is a drop in the share price. There are other reasons which make this stock among the best largecap stocks in India.
Among these include the solid monopoly business that Coal India has. Apart from this, it is a high margin business, and the company is debt free. Continuity of business along with almost very little dangers to business, make it a great large cap stock to own.
The government's recent thrust on "power for all" should keep coal demand high in the months to come. The risks of a downside are minimum at this point. The company tends to declare dividends in the month of Feb, so watch for this stock in the next few months.
Why to buy large cap stocks in India?
There are many reasons to be buying into large cap stocks in India. The first is that these are the bluest of blue chips. These stocks tend to fall to a smaller extent as compared to stocks from the mid cap and small cap space. What this means is that you can protect your capital and prevent a damage to it, as compared to small and mid cap stocks. Secondly, they are more liquid and hence you can sell larger quantities. Thirdly, it is easy to get a loan against shares for stocks from the large cap space.
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