Here are the top 5 PSU stocks with dividend yields above 5%

At the current share price of  ₹484, Coal India commands a dividend yield of 5.1%. Over the past year, its stock has shot up by 122%. Photo: Brent Lewin/Bloomberg
At the current share price of 484, Coal India commands a dividend yield of 5.1%. Over the past year, its stock has shot up by 122%. Photo: Brent Lewin/Bloomberg

Summary

  • At current valuations, you'd get a decent stock that could not only give FD-like returns but also have the potential for both capital appreciation and increased dividend payouts in the future.

Passive income from dividends has become the lifeblood of many investors, and is one of the many reasons why they keep faith in the stock market. Even the father of value investing Benjamin Graham agreed. In his words, “The true investor will do better if he forgets about the stock market and pays attention to his dividend returns and to the operation results of his companies."

The assumption is that companies paying out a slice of their earnings to shareholders typically have a record of strong profits. Dividend investors thus give the company an incentive to maintain their dividend payments into the future.

With that in mind, today we’ll look at the top five PSU stocks with dividend yields of over 5%.

The dividend yield is the return on a stock investment that’s solely from dividends. It is calculated by dividing the dividend per share by the current price. The higher the dividend yield, the better.

With that explainer out of the way, let’s get started.

Oh, and by the way, these stocks are filtered using the Equitymaster's powerful Indian stock screener.

#1 Power Finance Corporation (PFC)

Despite the strong rally in PSU stocks over the past few months, PFC commands a dividend yield of over 3%. Over the past year, its stock price has increased by 271%.

PFC stock price

Source: Google Finance
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Source: Google Finance

The company will pay an interim dividend of 3.5 on Thursday. Earlier, it paid an interim dividend of 4.5 for the current financial year. And in September 2023, PFC had issued bonus shares in the ratio of 1:4. Talk about consistency in rewarding investors!

According to the guidelines on capital restructuring of central public sector enterprises (CPSE), all CPSEs are required to pay a minimum annual dividend of 30% of their profit after tax (PAT) or 5% of their net worth, whichever is higher, unless an exemption is provided.

Source: BSE
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Source: BSE

Except for FY19, PFC has been consistently paying dividends since 2007. The median dividend per share is 7.9, and the average dividend per share over the past five years is 8.05.

Note that power financing companies such as PFC and IREDA have been in demand after India sped up its renewable-energy target. According to IREDA’s draft prospectus, it will require around 30 trillion in funding, of which 12 trillion could come from power-financing NBFCs.

Additionally, the government's late payment surcharge rule, which addresses defaults and delays in payments by distribution companies, will ensure the timely settlement of outstanding dues and current bills, and is expected to contribute to PFC’s wellbeing.

The anticipated growth in generation capacity in the coming years presents a favourable landscape for the company.

#2 Coal India

At the current price of 484, Coal India commands a dividend yield of 5.1%. Over the past year, its stock has shot up by 122%.

Coal India stock price

Source: Google Finance
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Source: Google Finance

So far this financial year, Coal India has already paid two interim dividends – 15.25 November 2023 and 5.25 in February 2024. The company is also expected to declare a final dividend in the coming months.

Coal India has consistently maintained its dividend yield above 5% over the past decade. It is now in an elite group of companies that have had dividend yields around 9-10%. For FY23, the company's dividend yield was 11.3%. As its stock price increased over the last year, the current yield is 5.1%.

The company has had significant capex of late to reduce its carbon footprint. It plans to invest another 200 billion over the next few years to set up solar power plants and thermal power plants, and revive fertiliser plants. It is also investing in increasing its mining and coal-washing capacity and improving rail infrastructure.

Such huge capex could affect the company's free cash flows. Moreover, Coal India’s is a cyclical stock, and could see huge fluctuations in earnings if coal prices fluctuate. This could hurt its capacity to pay dividends.

Despite the proposed capex, the company will be able to maintain its streak of high dividend payouts. Until renewable energy has a major share in power generation, coal will continue to dominate.

#3 Balmer Lawrie Investments

A relatively unknown PSU, Balmer Lawrie Investments is an NBFC operating in the financial services industry. It is currently under the control of the Ministry of Petroleum & Natural Gas.

At the current price of 667 per share, it commands a dividend yield of 4.9%. Over the past year, shares of the company have risen by 85%.

Balmer Lawrie Investments stock price

Source: Google Finance
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Source: Google Finance

The company is yet to declare a dividend for the current financial year. It paid a dividend of 7.5 a share in September 2023.

Investors usually consider this company as a pure dividend play as it has rewarded shareholders with big dividends over the years, as the table below shows.

Source: Ace Equity
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Source: Ace Equity

Balmer Lawrie Investments holds over 60% in Balmer Lawrie Co Ltd, and receives crores in dividends every year, adding to its strong cash flow.

Over the years, the company has steadily improved its performance and boasts of a respectable return on equity (ROE) and return on capital employed (ROCE) of 44% and 46%, respectively.

Its recent quarterly earnings showed improvement across segments.

#4 Power Grid Corporation

At the current price of 275 a share, Power Grid Corporation commands a dividend yield of 5.4%. Over the past year, the share price has increased by 70%.

Power Grid Corporation stock price

Source: Google Finance
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Source: Google Finance

This financial year it has paid two dividends – 4 in November 2023 and 4.5 in February 2024. It also rewarded shareholders with bonus shares in a 1:3 ratio in September 2023.

From humble beginnings in 1989, it has gone on to become the largest power transmission company in India. With its nationwide grid network, the company acts as a connector between power-generating companies and power-trading firms. It also has a pivotal role to play in bringing energyto the home of every Indian in the coming decades.

The company also ventured into EV charging infrastructure and is setting up charging stations across the country.

It plans significant investments to expand its transmission network, with a focus on interstate and intrastate projects. With it, it aims to connect renewable-energy sources, improve grid stability, and facilitate electricity trading.

#5 Gujarat State Fertilizers & Chemicals

At the current price of 241, the company commands a dividend yield of 4.1%. Over the past year, its stock has surged 84%.

Gujarat State Fertilizers stock price

Source: Google Finance
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Source: Google Finance

In September 2023 the company paid a final dividend of 10 a share, which was its highest payout.

GSFC is currently planning massive capex – around 40 billion over the next four years. This should keep it in good stead going forward.

In recent quarters, it posted its highest ever revenue and fertiliser sales, though the recent Q3 numbers were hit by rising input prices and subsidy reduction.

Over the past two years, the company has announced several modular capex projects, including an ammonium sulphate plant, an HX crystal project, a solar power project, and revamping its urea plant at Vadodara to boost production.

All these projects will be funded through internal accruals and surplus liquidity, which will help the company remain debt-free. It also plans to set up a green hydrogen plant in its Vadodara plant to support the government's green initiatives.

New product launches and new initiatives in the green hydrogen space are expected to drive its revenue in the medium term.

Which other PSU stocks have high dividend yields?

Source: Equitymaster
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Source: Equitymaster

Conclusion

So there you go –these PSU stocks have consistently maintained above-average yields and have a rich dividend history spanning over several years.

If you wish to invest in high-dividend-yield stocks, think of it this way.

At current valuations, you'd get a decent stock that could not only give FD-like returns but also have the potential for both capital appreciation and increased dividend payouts in the future.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

 

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