The shares of Coal India have slumped to a near 52-week low of Rs 218. There were reports that the government plans to split Coal India into various entities and list the same. Nonetheless, at the current valuations the shares of Coal India are a good pick on account of the dividend yield.
For the period ending March 31, 2019, the company reported a good set of numbers on the back of better realizations.
The company's net profits soared by a whopping 363 percent year-on-year to Rs 6,027 crore. Revenues increased more modestly by 7.5 percent to Rs 28,546 crores. Most brokerages had hiked their target price on the stock, following the company's good set of numbers. Going ahead for 2019-20, as well most brokerages are upbeat on the company's performance and hence the dividend yield. The stock at Rs 218, is not very far from its 52-week low of Rs 211.
Decent dividend yield
For FY 2018-19, Coal India declared dividend two times. The first was in December 2018, when the company declared a dividend of Rs 7.25 per share, while the second was in Feb 2019, when the company declared a dividend of Rs 5.85 per share. The total dividends declared by the company was Rs 13.1, during FY 2018-19. If you take the current stock price of Rs 218, the dividend yield works close to 6 per cent.
What we believe is that the dividends being offered by the company, will be significantly higher than the dividends that were offered in the previous year, ensuring that the dividend yield remains high.
Splitting of Coal India may remain an overhang
According to reports the government was thinking off spinning off units of Coal India Ltd, into separate listed companies to boost competition and raise government funds. This was as per reports in the Bloomberg.
Even if the spin-off does take place, it is likely that Coal India shareholders would get shares in the listed entities. That is only logical. However, as per the reports this is only in an initial stage and no concrete decision is taken in this regards. What makes Coal India attractive at this stage is also the price to earnings ratio, which for 2019-20, could be under 10. Buy the stock for decent dividend yields and gains.
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