Markets have climbed a lot recently and the Sensex is now trading at near 34,000 points. When stock prices go higher dividend yields fall. Until a few months ago, one would get dividend yields of as much as 7 to 9 per cent on good quality stocks. Not anymore. At best your dividend yields may now range in the 2 to 5 per bracket in good stocks. However, dividends are tax free upto Rs 10 lakhs, which is a good postive. We are only recommending high quality stocks, though their dividend yields could be lower.
Hindustan Petroleum is currently available on a cum dividend basis. The stock goes ex dividend on Feb 28. The company has declared a dividend of 145 % interim dividend.
This in itself gives a decent dividend of 4 per cent. Should the company declare additional dividends during the course of the year, the scope for increasing the yield improves. Another interim dividend like it does every year, will take yields to 5 to 6 per cent.
HPCL is a good play on crude prices. When crude prices fall, the stock gains and when crude prices gain, these stocks tend to be pressured. We believe that crude prices will always find sellers at higher levels, given the fact that there would be additional supply from shale.
For the quarter ending Dec 31, 2017, the company performed very well and the EPS was Rs 12.79. In all probability the company could end 2018-19 with an EPS of Rs 50, which translates into a p/e of just 7 times.
This is another refinery stock that yields a pretty decent dividend. Something that is most welcome in a declining interest rate scenario. The company last year declared a dividend of 60 per cent, which takes the yield to as high as 5 per cent.
In fact, there is no reason to believe that the company would not maintain the same dividend in 2018 as well. Again, the stock is available at a very low price to earnings ratio. This stock like HPCL mentioned above would largely move in line with crude prices, though mostly and not always.
When crude prices rally, MRPL tends to fall and vice versa. This is because margins and profitability might be impacted due to rising prices.
Indian Oil is the country's largest oil marketing company. Indian Oil has declared a dividend of Rs 19 per share in 2017. The current market price of the stock is Rs 367 and based on this the dividend yield works to 5.05 per cent.
However, it is important to note that oil marketing companies tend to benefit from lower oil prices. Hence, to the extent crude oil prices lower, better would be the profitability and better would be the dividend payout.
Also, lower crude price also helps to keep prices of the shares elevated. If crude prices skyrocket the shares of Indian Oil could fall, which has happened in the last few weeks.
SJVN declared a dividend of 27.50 per cent last year and based on the same the current market price translates into a dividend yield of 7.21 per cent.
SJVN is a mini ratna, government owned company. It has commissioned several hydro power projects and has also established a solar power project.
Net profit for the year ending Sept 30, 2017 was placed at Rs 434.89 crores. It is likely that we will continue to see profitability at the company grow as new project get commissioned.
At the current market price of Rs 35, the stock is not a bad deal on the dividend yield front.
Power Finance Corporation
This is another government owned company that is high on dividend yields. The company declared an equity dividend of 50% last year.
At the current share price the dividend yield works to 3.75%. Power Finance Corporation is a good company and like most of the stocks mentioned above, has a stable track record of paying dividend. The stock is also available at below book value.
However, the company has not performed well in the last quarter and question remains on whether the company is able to retain the same dividend.
A few things to note about dividend stocks
Dividend income is tax free in the hands of investors upto Rs 10 lakhs. So unlike interest, which has to be added to your total income, dividend income is tax free.
Of course, we need to mention that there is a tax of 10%, if your dividend income crosses Rs 10 lakhs.
This of course would be more applicable to owner promoters, who are the ones who may end-up earning more than Rs 10 lakhs as dividend income. Looking for dividend yields is a good way to boost your portfolio.
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