At a time when the markets are at a new record, it makes sense to stay invested in dividend stocks. This is because should the markets see a significant fall from these levels, you would have hedged your risk to an extent, as dividend stocks are unlikely to fall substantially. Some dividend stocks are giving better returns than bank deposits as well, so buying into them is not a bad idea.
Buy Coal India stock for dividend yields of more than 8%
This stock has been giving solid dividends for many years now. In the FY 2020-21 the board declared a dividend of Rs 12.5 per share in total, including interim dividend. If you buy the shares at the current market price of around Rs 144, the yield is around 8.6%, which is superb. We believe at least for the next few years, the dividend would continue to remain strong as the fiscal deficit looms on the government and it pushes public sector units to declare higher dividends.
We foresee good demand for Coal in the country, and the company is also cash rich and debt free. Having said that do not expect the stock to perform dramatically well from these levels, though some brokerages have set a higher price target of Rs 180 on the stock. If that happens investors would get capital appreciation we well. However, we do not want to predict stock movement at the moment, though we believe that risks are on the lower side are limited on account of the dividend yield on the stock.
Rural Electrification Corporation
The company is a majority government owned company, that is into infrastructure funding. For three consecutive years, 2018-19, 2019-20 and 2020-21, REC has declared a dividend of 11 per share. If you take into account the current market price of Rs 153, the stock is available at a dividend yield of 7.13%.
Again, it is important to predict the dividend yield on the stock, so investors do not buy the stock and get stuck with lower dividends. We believe there is no reason for the Rural Electrification Corporation not to maintain or enhance the dividends in the years to come.
In fact, for FY 2020-21, Rural Electrification Corporation recorded its highest ever yearly net profit at Rs 8,362 crores. Sanctions stood at Rs 1,54,821 crore as against Rs 1,10,908 crore, up 40% and the net profits were up a staggering 71%.
Apart from the dividend factor, REC is also good a stock to buy from a fundamental point of view. Shares in REC were last trading at Rs 152.80 on the NSE.
Power Finance Corporation
Power Finance Corporation, is another stock that is relatively safe and the downside risks are low. Again, like the two stocks mentioned above, this too is a government of Indian owned entity.
In FY 2019-20, the company declared a dividend of Rs 9.5 per share, while in 2020-21 it declared a dividend of Rs 8 per share. This takes the dividend yield on a share price of Rs 128, to the 6.5% levels. Being a company that is engaged in infrastructure lending, the downside risks are limited. PFC continues to maintain a healthy loan book, as well as low levels of non performing assets and has the highest net worth among NBFCs in India.
While for dividend yields the stock is a good bet, fundamentally too things look cheap. The stock is available at a price to book value of just 0.42 times, which makes it a good buy.
Investing in stocks is risky and investors need to be cautious. Neither Greynium Information Technologies Pvt Ltd nor the author, would be responsible for any losses incurred based on decisions made from the article. Investors are also advised caution as the markets are now at a record high. Please consult a professional advisor and avoid investing lumpsum amounts.