Welcome to Sana Securities! Login | Subscribe Now.

5 High Dividend Yield Stocks – Avoid or Buy?

Homestocks5 High Dividend Yield Stocks – Avoid or Buy?

high dividend yield stocksThe article discusses 5 high dividend yield stocks in current market environment which you may consider, and the main concerns facing each of them:

[1] Power Finance Corporation

Power Finance Corporation (“Power Finance” or the “Company”) is in the business of financing various power sector entities including State Electricity Boards (SEBs) and various private and public entities in the business of manufacturing power sector equipment. It is primarily focused on the thermal and hydro-energy generation areas. As of 31 March, 2016, the Company’s loan book (advances) stood at Rs. 238,920 Cr.

Power Finance

Dividend History – The Company has maintained an average dividend yield of 4.04 % over the last 5 financial years. At current price (13 June, 2016), power finance has a dividend yield of 5.54 %.

 

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

Dividend per share

5.00

6.00

7.00

9.00

9.10

Share Price

142.70

161.45

126.12

263.4

226.60

Dividend Yield

3.50%

3.72%

5.55%

3.42%

4.02%

Major Dividend Concern with the Company is that, of the total loans, 69% of advances belong to State Power Boards (SEBs) which have outstanding loans of more than Rs 5 lakh Cr  and accumulated losses of over Rs 3.8 lakh crore (as of November 2015). This has made SEBs averse to buying electricity and creates a question mark on their ability to pay back banks and NBFCs like Power Finance which have loaned money to them.

Power Finance earns interest income and has been doing that successfully on its loan book (so far) but the loan amount of Rs. 238,920 (i.e. loan book) Cr. Itself is at high risk.

Similar is the case with Rural Electrification Corporation (REC). The Company has a current dividend yield of 6.63%. As of March 31, 2016, the Company’s loan book stood at Rs. 201,278 Cr., of which 82 % belongs to SEBs.

[2] NMDC

NMDC (“NMDC” or the “Company”) is involved in the exploration of a wide range of minerals including iron ore, copper, rock phosphate and lime. The Company’s customers includes: JSW Steel, Essar Steel, Rashtriya Ispat Nigam, MMTC, Ispat Industries and Welspun Max Steel. NMDC operates with ZERO debt on its books.

Dividend History – The Company has maintained an average dividend yield of 4.72 % over the last 5 financial years. At current price (13 June, 2016), NMDC has a dividend yield of 9.46 %.

 

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

Dividend per share

3.30

4.50

7.00

8.50

8.55

Share Price

249.40

191.15

122.65

142.05

103.95

Dividend Yield

1.32%

2.35%

5.71%

5.98%

8.23%

Concern – slowdown in the metal sector.

For FY 2016, income from operations declined by 47.75 % to Rs. 6,455.80 Cr. from Rs. 12,356.41 Cr. and PAT decreased by 52.84 % to Rs. 3,028.33 Cr. from Rs. 6,421.86 Cr. The Company’s customer Tata steel reported a loss of Rs. 3,179 Cr. in FY 2016. Similarly, JSW Steel reported a loss of Rs. 850.76 Cr. NMDC’s share price has fallen 26 % over the last 1 year. Any prolonged slowdown in the metal sector could mean that the company might not be able to pay similar dividends in future.

Note – Be cautious with respect to commodity companies, given the pressure on commodity prices in India as well as globally, which could keep profits under pressure.

[3] Noida Toll Bridge

Noida toll bridge (“Noida Toll” or the “Company”) is a road construction company with one flagship project generating almost its entire revenue – the Delhi Noida Toll Bridge (DND Flyway). Noida Toll is an investment theme where the cost incurred by the Company is one time but the revenues are recurring and ever increasing with the traffic. The Company has also reduced its debt over the past 10 years:

Noida Toll Bridge Company (amount in Rs. Cr.)

Year

2006

2007

2008

2009

2010

Debt

323.52

185.99

217.83

198.11

169.00

Year

2011

2012

2013

2014

2015

Debt

107.25

75.37

23.15

19.69

0.00

Dividend History – The Company has maintained an average dividend yield of 6.08 % over the last 5 financial years. At current price (13 June, 2016), Noida Toll has a dividend yield of 12.93 %.

 

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

Dividend per share

0.50

1.00

1.00

2.50

3.00

Share Price

22.75

24.70

21.25

35.40

24.20

Dividend Yield

2.20%

4.05%

4.71 %

7.06 %

12.40 %

Concern – The Company continues to face a strong anti toll protest from activists demanding toll free access to their only revenue making project. The argument given by the protestors is that the Company has recovered nearly four times their total project cost. On 10 July, 2015, the Company’s stock price declined 16 % to 26.70 from Rs. 32 in a single trading session. Noida Toll’s share price has fallen 27 % over the past 1 year as many investors rushed to dump the stock because of all the negative news. 

[4] ONGC

ONGC (“ONGC” or the “Company”) is the second largest oil and gas exploration and production company in the world and ranks 23rd among leading global energy majors. ONGC has consistently been among the top dividend paying companies in India.

ongc

Dividend History – The Company has maintained an average dividend yield of 4.55 % over the last 5 financial years. At current price (13 June, 2016), ONGC has a dividend yield of 4.40 %.

 

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

Dividend per share

9.75

9.50

9.50

9.50

9.75

Share Price

282.00

280.30

429.35

226.00

282.00

Dividend Yield

3.46%

3.39%

2.21%

4.20%

3.46%

Given the strong financial position of ONGC, we expect the company to remain a consistent dividend payer in future. Further, we expect the company to increase its dividend payouts in future as oil prices recover making it one of the best times to buy this blue chip. Agree?

Read More – ONGC Stock Offers Pure Value at Current Price

[5] Oil India

Oil India (“Oil India” or the “Company” is engaged in exploration, development, production and transportation of crude oil and natural gas. Despite the sharp crude oil price correction, Oil India’s revenue suffered a small decline of 0.94 % in FY 2016.

oil india

Dividend History – The Company has maintained an average dividend yield of 6.33 % over the last 5 financial years. At current price (13 June, 2016), Oil India has a dividend yield of 5.70 %.

 

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015

Dividend per share

37.50

47.50

30.00

21.50

20.00

Share Price

523.34

483.00

446.75

628.55

441.35

Dividend Yield

7.17%

9.83%

6.72%

3.42%

4.53%

Then there are some obviously avoidable High Dividend Yield Stocks

The Vedanta Group – Hindustan Zinc – 16.30% | Cairn India – 6.25 % | Vedanta – 3.14 %

Concern: Bad and questionable management

Cairn’s business is suffering due to crude oil prices fall. Though Cairn has healthy cash reserves and will continue to generate cash from operations, its merger with Vedanta is a key overhang due to investor fears around utilization of its cash to ease Vedanta’s problems. Read More – Vedanta Cairn Merger: The Good, Bad and the Ugly

Oracle Financial Services Software is one of top 10 companies with high dividend yield of 19.47%. The Company has declared the special dividend of 13,300 % i.e. Rs. 665 per share after 8 years in FY 2015.

Strides Shasun also has a high dividend yield of 9.54 % because of payment of special dividend of 1,080 % i.e. Rs. 108 per share in FY 2015 and 5005 % i.e. Rs. 505 per share in FY 2014.

Indigo Airlines – the high dividend yield it reports (i.e. 35%) is because of the dividend paid prior to its listing. Don’t be fooled.

___________

Also Read our dividend article series below:

  1. Super 6 Dividend Income Stocks
  2. Dividend Payout Ratio
  3. Finding Best Dividend Paying Stocks
  4. Record Date vs Ex Dividend Date 

Standard Disclaimer: Please do your own research before buying / selling any stocks discussed here, or otherwise. Keep in mind that this is not an exhaustive list of high dividend yield stocks in India. The concerns mentioned for each of the stock discussed above may or may not be significant depending upon individual investor and I express no views of my own in this regard.

A list of sustainable high dividend yield stocks is available for subscribed members here.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 
Post Tags -

Leave a Comment