The next 2-3 months would see most companies announcing dividends for the financial year 2017-18 and some have already announced the same. Here are a few stock ideas that would go well as stocks with great dividend yield.
Shares in Coal India have fallen in the last two days, on some coal mines being downgraded for poor quality coal. This has led the stock price to fall from levels of Rs 295 to the current price of Rs 278. At the current price of Rs 278, the stock may not be a bad bet at all. In fact, we believe that in the coming days the stock has the potential to appreciate as well, as the stock has been in an oversold territory. Now, let us take the dividend yields and see how it works on the current market price.
In 2016-17, Coal India declared two dividends. One was of Rs 18.75 per share and the other was for Rs 1.50 per share, this taking the total to Rs 20.25. Now, let us assume that you buy 100 shares at Rs 27,800 (current market price Rs 278).
If the company declares the same dividend you get back Rs 2025, which is a yield of almost 7-8 per cent. This is tax free in the hands of the investors and hence is one of the best bet at the current levels. These kind of yields one does not get even in bank deposits. This makes the shares of Coal India attractive at the current levels.
Infosys has been having a few quarters that have been bad and analysts are worried about the growth at the company. However, even as investor sentiments take a turn for the worst, the stock is not a bad deal in terms of dividends. These days banks are offering such poor returns, that tax free dividend yielding stocks have become more attractive. Now let us take a look at what would be the dividend yields of Infosys.
Rising yields likely
Now, before we work on the dividend yields of Infosys, there are a few things that we should know. First is that the company would be distributing 70 per cent of the free cash flow in the coming years, which means dividends would be high.
However, let us work on the existing dividend yields. In the financial year 2016-17, the company declared a dividend of Rs 40 per share. Say, you buy 100 Infosys shares at Rs 900. You spend Rs 90,000 and get Rs 4000 back, taking the yield to almost 4.5%.
Now, the company is most likely to increase the dividend, because of the decision to distribute 70 per cent of the free cash flow. This should take the dividend yield to anywhere between 5-6%. This makes the stock of Infosys a good bet at the current levels.
Like Coal India, this is also a government owned company, whose dividend policies can be very volatile, but, based on past track record can offer dividend yields ranging from 5-6 per cent in 2017-18.
The stock, which was so far languishing at levels of Rs 100, has now surged to Rs 125, thus bringing down the overall dividend yields. However, it is also important to remember that dividends up to Rs 10 lakhs are tax free in the hands of the investors.
Rural Electrification Corporation
This is also a stock that is not a bad bet at all for dividend yield. Last year the company declared a dividend of Rs 12.1 per share. On the current market price of Rs 190, the dividend yield is around 6-7 per cent. We do not see the dividends remaining volatile in the years to come, as the company has a very stable policy towards payments of dividends
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