This Stock Gives A Dividend Yield Of 8%, Should You Buy The Same?

The stock of Coal India, the world's largest miner of coal has fallen significantly over the last few days. The stock from a 52-week high of Rs 203, hit on Oct 6 is now down to Rs 153. At the current market price the stock gives a good dividend yield.

Attractive dividend yield of 8%

For the FY 2020-21, Coal India declared a dividend of Rs 12.5 per share in total. The first ex dividend date was on 19th November and the second was on March 15, 2021. The first dividend was Rs 7.5 and the second was Rs 5. Now, if you take the current market price of Rs 153, the dividend yield works to 8.16%.

Current market price	Dividend declared in Fy 20-21	Dividend yield
Rs 153	Rs 12.5	8.16%

Now given that banks, at least the large private sector banks and government owned banks offer an interest rate of a maximum of 5.5 on deposits, this dividend yield in excess of 8% is now bad at all.

Dividend yields could go even higher

So far for FY 2021-22, the company has not declared a dividend so far. This means that those who buy the shares could receive dividends in the future. Another thing to note as there is a possibility that the government declares an even higher dividend this year. The government is running a huge fiscal deficit and there is a possibility that PSUs could declare higher dividends. If that were to happen the yields could spike even further.

Recently, the company declared its quarterly numbers, which were not very good. For the quarter ending June 30, 2021, the company reported a Consolidated Total Income of Rs 25963.12 Crore, down -7.19 % from last quarter. Realizations and the net profits of the company were also not too great. Brokerages remain optimistic on the stock of Coal India.

What brokerages are saying?

ICICI Securities has set a price target of Rs 253 on the stock. .According to the brokerage recent events leading to a shortfall in supplies has highlighted coal's importance and necessity until large-scale storage solutions become viable. "Elevated global coal prices and supply chain bottlenecks would likely make Coal India a preferred coal supplier for the domestic consumers in the medium term," the brokerage has said. CLSA also put a buy call on the stock of Coal India with a price target of Rs 210. This is significantly lower than the price set by ICICI Securities.

"The Q2 EBITDA was below estimates on higher costs and lower realisations, however, EBITDA ex-OBR (0ver burden removal) fell 5 percent Quarter on Quarter to Rs 272 per tonnes. Receivables fell to Rs 14,900 crores," the brokerage said in a report.

We believe that the sharp fall in the stock post quarterly numbers, offers good opportunity for dividends.

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies and the author are not liable for any losses caused as a result of decisions based on the article. Caution is advised as stock markets have more than doubled from Covid-induced lows.