If you are looking for attractive dividends in the month of Feb and March, there are plenty of options, given that the stock markets have crashed in the last few days. Here are 5 dividend stocks that you should buy, which could take your dividend yields to between 6 to 8 per cent in the coming months. This means the returns could be much better than bank deposit interest rates. Do not forget to read the warning at the end of the article.
1. Coal India
Shares in Coal India have plunged to a new 52-week low of Rs 172. However, the stock is now trading at Rs 174, and based on the past dividend declared in 2018-19, the shares could offer you a dividend yield of 7.5 per cent.
The company is a cash rich and debt free company. The business prospects are pretty much assured and a virtual monopoly. We wish to emphasize that from the next financial year onwards, dividends become taxable in the hands of investors, even while the dividend distribution tax has been abolished.
Even from an investing point of view, the shares of Coal India could be a good long-term pick, given that it has been regularly paying dividends every year.
This is another share that has dived to a new 52-week low of Rs 102. In fact, the shares of ONGC have now fallen to a new 11 year low and even fundamentally the shares look very reasonably valued.
At the current market price of Rs 103, the stock yields a dividend of near 7 per cent, based on last year's dividends. While it is difficult to believe that the company would declare a higher dividend than last year, it is possible that it might, as the government pushed some of the PSUs to declare higher dividends, to help bridge the fiscal deficit.
The company's shares have been hit badly, on account of falling crude prices. However, as crude prices recover, we might see the company a good attractive stock, given that the price to earnings ratio for the company is just 5 times one year forward earnings.
3. Hindustan Zinc
If you look at the dividend yields of Hindustan Zinc based on last year's dividends, you realize that the dividend yield is higher than 10 per cent. For example, the company declared a dividend of Rs 20 per share last year and based on the current price of Rs 190, the yield translates to Rs 10.43 per cent. We do not believe that the company will declare the same dividend as last year.
However, even if it does anywhere even closer to Rs 15 per share, your dividend yield would be 7.5 per cent. In the case of Hindustan Zinc, it is hazardous to guess the dividends, while it is more predictable in the case of ONGC and Coal India.
So, we are not sure what kind of dividend would come in the case of Hindustan Zinc, also because its quarterly numbers in the last few quarters have not been too good.
4. Oil India
This is the second largest oil and gas exploration company, after ONGC. The shares recently dived to a new 52-week low on falling crude prices. For the year ending March 2019, Oil India declared an equity dividend of Rs 10.25 per share. At the current share price of Rs 124.15 this results in a dividend yield of 8.44 per cent.
Again, this is an oil and gas exploration company that has been paying good dividends each year and has a good track record profits. It has the potential to even offer capital appreciation in the short to medium term.
5. Indian Oil
While Oil India is largely a oil and gas exploration company, Indian Oil refines crude and sells the same through its retail outlets and is also called an Oil Marketing Company.
For the year ending March 2019 Indian Oil Corporation declared an equity dividend of Rs 9.25 per share. At the current share price of Rs 110 this results in a dividend yield of 8.45 per cent.
Crude oil prices have fallen over the last few weeks, in the light of what is happening with the Coronavirus in China. This is likely to benefit a company like Indian Oil.
We are basing are assumptions on the dividends declared last year and the dividend for 2019-20 could certainly change. All of these companies tend to declare dividends in the month of Feb and March. Remember, dividends are tax free in the hands of investors until March 31, 2020 and would be taxed thereafter. Another important point to note is that while in bank deposits your returns are assured, here there could be a damage to the stock price and hence capital losses. So, tread with caution before investing.
About the author
Sunil Fernandes has spent 25-year analysing shares are stocks. He is also an expert on mutual funds and actively covers taxation and commodities like Gold.