Public Sector Undertakings (PSUs) in India have gained significant attention, driven by the government’s focus on infrastructure, defence, and railways. With general elections on the horizon, the Modi government actively supports and gears up PSU companies. Prime Minister Narendra Modi’s recent endorsement of PSU stocks has further piqued investor interest. PSU stocks are renowned for their stable and consistent dividends, owing to their integral role in vital sectors of the economy. However, some select PSU companies have maintained high dividend yields and embraced growth opportunities. Let us explore five PSU stocks that warrant your attention:
1) Hindustan Aeronautics Limited (HAL) – Dominating the Defense Sector
– HAL is a crucial player in the defence sector, supplying aircraft, helicopters, engines, and avionics and providing maintenance and repair services to various defence entities.
– Its involvement with ISRO and contributions to space programs underscore its versatility.
– HAL’s substantial role in India’s defence sector is evident, with a contribution of nearly ₹270 billion in the fiscal year 2023, accounting for approximately 27% of total defence production.
– The company boasts an impressive order book of ₹818 billion for the fiscal year 2024.
– Recent deals, such as the US$716 million agreement with GE Aviation for engine supply, emphasize its growth prospects.
– HAL maintains a debt-free status and has consistently paid dividends since 2008.
– In fiscal year 2023, it declared a final dividend of ₹55 per share, with a dividend payout ratio of 31.6%.
– The company’s free cash flows of ₹63 billion further reinforce its dividend-paying capacity.
– A recent stock split announcement, with a record date of September 29, 2023, adds to its appeal.
2) Oil India – Diversifying the Hydrocarbon Value Chain
– Oil India, initially an E&P company, has diversified its operations across the entire hydrocarbon value chain.
– Apart from traditional oil and natural gas activities, it generates electricity from renewable sources.
– Dividends have been consistently paid since 2010, with a dividend payout ratio of 22% in the fiscal year 2023.
– A 14% CAGR (compound annual growth rate) in dividend payments over the last five years reflects the company’s dedication to its shareholders.
– A current % dividend yield of 7.2% and free cash flows of ₹69 billion reinforce its dividend-paying potential.
– Aggressive investments in expanding its Numaligarh Refinery and other projects position Oil India for growth.
– In the fiscal year 2023, it invested ₹55 billion in capex to enhance production capacity and expand its offerings.
– Plans to invest ₹49 billion in fiscal year 2024 indicate a robust growth trajectory.
3) Coal India – The Coal Monolith
– As a ‘Maharatna’ company, Coal India contributes 80% of India’s coal production, primarily serving the power sector.
– A diverse product range includes coking coal, non-coking coal, and value-added products.
– Coal India has had a consistent dividend history since 2011, with a dividend payout ratio of 53.1% in the fiscal year 2023.
– A current % dividend yield of 10.6% and free cash flows of ₹200 billion make it an attractive dividend stock.
– Plans to invest ₹15-20 billion annually for the next three years signify its growth intentions.
– Diversification plans include international lithium, cobalt, and nickel asset acquisitions.
– Expanding coal mining and washing capacity, improving rail infrastructure, and venturing into renewable energy are part of its ambitious agenda.
4) Power Grid Corporation of India – Powering India’s Grid
– Established in 1992, Power Grid Corporation is India’s largest power transmission company, with a substantial market share.
– It operates a nationwide grid for power transmission and actively engages in strategic government projects.
– Ventures into EV charging infrastructure exemplify its adaptability.
– In the fiscal year 2023, a capex of ₹52 billion expanded transmission capacity, with further investments of ₹88 billion planned for fiscal year 2024.
– Despite increasing capex, the debt-to-equity ratio has reduced to 1.4x from 2.2x over five years.
– Strong financial performance includes a CAGR of 9% in net profit over five years.
– Dividends have grown at a CAGR of 18.7% during the same period.
– The company paid a dividend of ₹14.7 in the fiscal year 2023, with a dividend payout ratio of 66.7%.
5) RailTel Corporation of India – Telecom Infrastructure Leader
– RailTel Corporation is a significant player in India’s telecom infrastructure sector, holding exclusive rights to lay optical fibre cables along the Indian Railways’ vast network.
– A high order book of ₹45 billion highlights its continuous network expansion.
– Plans for ₹2 billion in investments for network enhancement and data centre capacity in fiscal year 2024 indicate growth potential.
– Consistent financial performance, with a CAGR of 14.1% in revenue and 11.1% in net profit over five years.
– Dividends have been paid since listing in 2021, with a dividend payout ratio of 43.3% in fiscal year 2023.
– Free cash flows of ₹1 billion ensure dividend continuity in the next fiscal year.
Summary
These five PSU stocks exemplify a blend of steady dividends and growth potential. While they have historically been recognized for their dividend payments, their proactive investment strategies and diversification efforts position them for growth in their respective sectors. As investors look to navigate the evolving landscape of Indian PSU stocks, these companies offer compelling opportunities to consider.
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