Stocks with best dividend yield in India.

Best dividend stocks in India.

2020 is year of recession for market this has created many opportunities to get stocks with best dividend yield at much cheaper prices in India. Before knowing  the names it is important to know they behind their selection.

Markets have trends,  between 2005 to 2007 utilities made  huge rally company like Unitech grew nearly 100 times in matter of three years. Since then utilities are bad investment. From 2007 to 2015 Pharma’s generic segment got boost due to geographical advantage Indian Pharma companies have. Financial services since last few years are in trend now, their high return on equity excellent business models consistency in earnings are catching eye of investors.

When something is in trend market value those things much higher .and investors tend to ignore other things in market. Crowd following tendency is so high that unbelievably profitable opportunities are skipped and trending stocks are bought .

In this post we are going to take look at such ignored gems which can be excellent investment in point of view of dividends.

Public sector companies. (No, I am not joking !)

As I previously talked about trends in market. Public sector companies were in trends for few years form 2000. Investors have made their capital 2X  to 5X in that period, but since then almost are public sector companies including public sector banks are huge under performers  in market. .

There are several reasons for this like government interference in such businesses. Bad management,  pressure from local politicians, strikes, bureaucracy and many others .

Thus investors turned their back to PSUs since then. That is why prices of this companies declined bad economic environment and dark clouds of recessions added fuel to fire and prices of these stocks became so low that consistent dividends they were offering caused very attractive dividend yields.   

 Some robust public sector dividend giving companies.

Company NameStock priceDividend yield
OIL INDIA89.107.58%
ONGC83.9514.29%
COAL INDIA142.1012.56%
GAIL1056.92%
best dividend stocks - coal India.
Coal India
best divided stocks
BPCL
ONGC

Aren’t there other companies giving such type of attractive yields?

The answer is of course there are many others but because of several reason (which I am going to mention further ) PSU’s  have comparatively very less risk compared to any other dividend giving companies.

Businesses:

You should buy a business even a fool can run, someday a fool will.Warren Buffett

What most of the PSU’s do, they take crude oil refine it to make diesel and petrol and other petrochemicals or extract coal form mines or make electricity.

This companies does not have volatility in demand like steel or sugar. Demand for above products will continue to be there no matter how much  upheavals happen in economy. So there will be continuous stream of profits over foreseeable future.

Governments :

These companies  provide employment of lakhs of workers so government will always have to revive them with their deep pocket if something went wrong in businesses. In short they are too big to fail .

Let’s take example of Air India. Government poured  billions of rupees into Air India to save it from going bankrupt and is ready to pore more into it if needed.

Govt may clear Air India’s dues worth Rs 22,000 cr

Govt may clear Air India’s dues worth Rs 22,000 cr

Read more at:
Government of India may clear Air India’s due worth of 22,000 crores.

Barrier to entry :

Electricity production, Oil refining, Railways, Coal extracting are all vary capital intensive businesses require hundreds of billions of dollars investments. Thus competitions for such businesses will not be created over night .

Mining, refining, electricity generations require government licenses. Which seems very hard to obtain looking at bureaucracy  and politics in India .

Price risk :

 Reluctant nature of investors and institutions toward PSUs have brought PSU stocks to such low levels that there are almost no downside risk.

This businesses grow nearly at pace of GDP growth (nearly 7 percent ) but have average PE ratio of 4-5 and most of them are trading below their book value.

Alternative to dividend stocks :

Other alternative which offer same returns with near of less same levels of risk is fixed deposit in banks. But stocks have  along with dividend gains have capital gain potential  and way more liquidity than FD or other instrument could provide. Also investor  does not have to pay fines for early redemption.

So it is preferable to invest in stocks with best dividend yields in India than to save in bank instruments in this period.

Also Read : Psychological tendencies that cause wrong investment decision making.

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