Indian benchmark indices continue to breach new highs, with little to stop them. Against such a backdrop it is a good idea to buy into stocks that can offer good dividend yields, to protect against any severe capital erosion. Here are two dividend stocks, whose share price might not fall dramatically, given that they are excellent play on dividends.
REC is a government owned power finance company.
Rural Electrification Corporation shares are a good buy for their dividends. The company declared a dividend of 9.15 per share already in 2018. The dividend has in fact been much higher in the past. Even if we assume that REC maintains the same dividend of 9.15 per cent, the yield works to 8.05 per cent at the current market price of Rs 111.
Say you have Rs 1 lakh to invest, you can buy 901 shares of REC. If you receive a dividend of Rs 9.15 per share, you receive Rs 8,333 as dividends, which translates into 8.33 per cent dividend yield per annum.
Now, what is interesting is that this is tax free dividend, given that dividends are not taxed up to a sum of Rs 10 lakhs. The rate of return is much better than bank deposits, which currently offer you at best 7.5 per cent returns, that too the amount is taxable
It is extremely doubtful that we would see a dramatic fall in the price of the shares, given that in that case the yield would be even higher.
Coal India is again a great play on dividends. The company in the past has declared dividends of around Rs 18 to Rs 29 per share in the last few years. This year Coal India may declare much better dividends on account of better coal off take.
Even if we assume that the company declares a dividend of Rs 20 per share, at the current market price of Rs 274, the yield works to around 7.05 per cent. The shares of Coal India, like REC have a limited downside risk owing to the dividends that the company declares.
Apart from this, the stock is also fundamentally undervalued. Analysts are recommending the stock also largely on account of the fact that cost pressures on account of wage hikes is behind the company and coal off take has been better. This is a cash rich company, with a solid assured business.
A good stock to buy with limited downside risk.