Top 5 PSU Stocks: After a long day at work, you take a nap. When you wake up and check your phone, you find that your account has been credited by ₹10,000.
Such a good feeling that is! You’re not sure where that came from. Later, you find that the money came from a PSU that you had invested in. You simply received dividends for the shares that you’re holding.
Dividends can be a passive source of income for many. You might not believe it, but ace investor Rakesh Jhunjhunwala made a whopping ₹122.63 crores as dividend income in FY22!
The general perception for many is that PSUs are inefficient. On the contrary, some of them do much better than private sector companies and have a huge stash of cash that mounts every year.
In this article, we shall take a look at the top 5 PSU stocks that pay dividends generously and things that you should consider before investing in any of them.
What Are Public Sector Undertakings (PSUs)?
A Sector Undertaking (PSU) means a company in which not less than fifty- one per cent of the paid-up share capital is held by either the Central Government, or by any State Government (s) or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company as thus defined under Clause (45) or Section 2 of the Companies Act, 2013.
In simple words, Public sector Undertakings are those government entities in which
- the Central Government of India
- or any one or more State Governments
- or the Central Government and one or more State Governments together
hold at least 51% of the total paid-up share capital of the company.
Let’s Chat A Little More About Public Sector Undertakings
Public Sector Undertakings help to make things easy in an economy. They
- help to control the prices of goods and services.
- generate revenue for the Government.
- provide infrastructure to rural segments.
- attract private companies to rural markets.
- help to increase long-term economic gains.
- contribute a lion’s share to India’s GDP and capital formation.
These companies provide continuous and steady dividends to their shareholders. They are profoundly interrelated to the core sectors of the economy and make a great source of passive income.
Earn while you nap, remember? Typically, they provide about 30% of the PAT as annual dividends. Safe and sound!
Mull Over These Factors Before Investing
Sure, PSU stocks pay dividends generously and many of them are pretty stable, albeit, do consider that they:
- are well known.
- have a higher return on capital employed.
- do not have mounting debt.
- enjoy higher and consistent or increasing profit margins.
- have a huge stash of free cash flows.
- and, the obvious, check their dividend history.
The Catalogue: Top 5 PSU Stocks That Pay Good Dividends
We’re sure that you shall do your research before investing in any stock. But a headstart isn’t all that bad. When you do your research, your list might differ from ours, but that’s okay.
Things in the stock market change faster than our thoughts. This list isn’t inscribed on a stone, after all. Here’s a list of the top 5 PSU stocks that pay dividends generously.
The Indian Oil Corporation is a Maharatna company that is engaged in the business of petroleum products, petrochemicals, and oil and gas exploration activities.
It owns and operates nine refineries in India. Its other business activities include explosives and cryogenic business, windmills, and solar power generation.
Its business spans the entire hydrocarbon value chain starting from refining through to marketing. It has a network of fuel stations, bulk storage terminals, aviation full stations, inland depots, LPG bottling plants, and more.
In fact, it has also set up 257 electric vehicle charging stations and 29 battery swapping stations at its energy pumps across India.
|Company||Indian Oil Corporation Limited|
|Face Value (₹)||10|
|Debt to Equity||1.04|
|Market Cap (Cr)||1,16,312|
|Promoter’s Holdings (%)||51.50%|
|Dividend Yield (%)||8.50%|
|Stock P/E (TTM)||5.24|
|Net Profit Margin||3.95|
The Indian Oil Corporation has declared 35 dividends since August 27, 2001. It has declared an equity dividend amounting to ₹ 10.50 per share in the past 12 months.
If an investor held 1000 shares and was eligible to receive dividends, then the total dividend would amount to ₹ 10,500. Further, it has not split the face value of its shares since January 01, 2000.
2. REC Limited
REC Limited is an infrastructure finance company and a PSU under the Ministry of Power. Its main business is to provide finance to the power sector at the central as well as state levels.
It provides interest-bearing loans for generation, transmission, and distribution projects. Apart from this, it provides short-term and medium-term loans for various purposes.
It has a network of approximately 22 offices and acts as the nodal agency for various schemes of the Ministry of Power, Government of India.
Some of these schemes include Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and SAUBHAGYA amongst others.
REC Limited is the first Indian company to raise money from the international markets through Green Bonds listed on the London Stock exchange in 2017.
|Company||Indian Oil Corporation Limited|
|Face Value (₹)||10|
|Debt to Equity||7.53|
|Market Cap (Cr)||26,276 Crores|
|Promoter’s Holdings (%)||52.63%|
|Dividend Yield (%)||9.18%|
|Stock P/E (TTM)||3.14|
|Net Profit Margin||23.57|
REC Limited has declared 29 dividends since September 08, 2008. It has declared a dividend of ₹12.21 in the past 12 months. If an investor held 1000 shares and was eligible to receive dividends, then the total dividend would amount to ₹12,210
The company is a non-deposit-taking NBFC registered with the RBI as an Infrastructure Finance Company. The Power Finance Corporation is a CPSE that has been awarded the ‘Maharatna’ status.
It extends financial assistance to the Indian power sector with the help of fund-based and non-fund-based projects. Some of its fund-based products include lease financing for the purchase of equipment, project term loans, and debt refinancing.
Its non-fund-based products include a deferred payment guarantee, a letter of comfort, and a policy for a guarantee of credit enhancement.
It offers consultancy and advisory services in capacity building, regulatory and financial aspects.
The Government of India holds a 56% stake in the company and in March 2019, the company, in turn, acquired a majority stake of 52.63% in REC Limited.
|Company||Power Finance Corporation|
|Face Value (₹)||10|
|Debt to Equity||10.85|
|Market Cap (Cr)||32288|
|Promoter’s Holdings (%)||55.99%|
|Dividend Yield (%)||9.61%|
|Stock P/E (TTM)||2.75|
|Net Profit Margin||21.91|
Power Finance Corporation Limited has declared 29 dividends since September 07, 2007. It has declared an equity dividend amounting to Rs 12.75 per share in the past 12 months.
If an investor held 1000 shares and was eligible to receive dividends, then the total dividend would amount to ₹12,750.
4. NMDC Limited
The Government of India has a 100% stake in this ‘Navratna’ company. NMDC Limited mines iron ore, which is crucial for the steel industry.
It has ventured into the steel business because it can procure iron ore at a low price. Apart from this, it explores a range of other minerals like copper, limestone, diamond, tungsten, and beach sands.
The company has 7 iron ore mines and two coal blocks in Jharkhand. It operates the only mechanized Diamond Mine in India at Panna, MP with an Annual production of up to 28,450 Carats.
|Face Value (₹)||1|
|Debt to Equity||0.07|
|Market Cap (Cr)||49,996|
|Promoter’s Holdings (%)||60.79%|
|Dividend Yield (%)||4.55%|
|Stock P/E (TTM)||7.97|
|Net Profit Margin||40.65|
NMDC Limited has declared 41 dividends since August 28, 2002. It has declared an equity dividend amounting to Rs 14.74 per share in the last 12 months.
If an investor held 1000 shares and was eligible to receive dividends, then the total dividend would amount to ₹ 14,740.
5. Coal India
The power and the steel sector are major consumers of coal, apart from cement, fertilizers, and brick Kilns. Coal India is a ‘Maharatna’ company.
It mines and produces coal and operates coal washeries. Coal India accounts for 83% of the total coal production in India and possesses 48% of the reserves.
The high market share might come down because the government has allowed 100% FDI investment through the automatic route.
This policy will increase competition for the company. Several large players like the Adani Group and Vedanta Ltd are interested in the business.
Some of its products are Coking Coal, Semi – Coking Coal, Non–Coking Coal, Washed and benefacted coal, and other value-added products. It has a total of 352 mines and 12 washeries.
|Face Value (₹)||10|
|Debt to Equity||0.16|
|Market Cap (Cr)||1,17,554 Crores|
|Promoter’s Holdings (%)||66.13%|
|Dividend Yield (%)||9.17%|
|Stock P/E (TTM)||9.26|
|Net Profit Margin||9.44|
Coal India Ltd. has declared 20 dividends since Feb. 18, 2011, and it has declared an equity dividend amounting to Rs 17.50 per share in the last 12 months.
If an investor held 1000 shares and was eligible to receive dividends, then the total dividend would amount to ₹ 17,500.
In this article, we took a look at public sector undertakings or PSUs and the top five PSUs that pay good dividends. We told you about a few factors that you should consider before investing in PSU stocks.
However, please note that you will have to do qualitative and quantitative research on the sector and the companies before investing. Things keep changing and it is important to decide with the help of updated information.
That’s all for today’s article on the top 5 PSU stocks, folks. Thank you for hanging with us 🙂
P.S. If this article added value, consider sharing it with your friends and family. It always helps! Happy investing, until next time!
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