Dividend yield stocks are becoming increasingly attractive for investors, helped by increasing global liquidity and declining real interest rates
From March low of 11,179.60, Nifty IT index has zoomed 115 per cent, while NSE's Nifty soared 78 per cent during the period.
Central PSUs may soon raise dividend per share, as earnings and cash flows increase over the next few years, brokerage and research firm ICICI Securities said in a recent report. Dividend yield stocks are becoming increasingly attractive for investors, helped by increasing global liquidity and declining real interest rates, the report said. ICICI Securities pointed out that the CPSE index had the highest dividend yield of 6%. “Based on consensus forecasts for CPSE index stocks (where available) it is apparent that the dividend per share for most CPSE stocks are expected to rise over the financial year 2020-2023,” the report said.
The rise in dividend per share (DPS) is supported by rising EPS (earning per share) and FCFO (free cash flow from operations) over the same time period. Analysts at ICICI Securities said that the current environment of negative interest rates augments the likeability of stocks with high dividend yield. Compared to other fixed income instruments, equity now not only appears more attractive but gives an added advantage of ‘inflation hedge’.
Some of the names that the report highlights include Power Grid, a state-run energy transmission firm. Currently trading at Rs 192 per share, Power Grid gave an DPS of Rs 10 last fiscal year. This fiscal year, ICICI Securities estimates the DPS to be at Rs 11.4, which is pegged to increase to Rs 13.2 in the following year and Rs 15 by financial year 2023. NTPC is another dividend play which gave a DPS of Rs 3.15, the previous fiscal year. This is expected to increase to Rs 7.44 by 2023. Coal India, one of the highest dividend yield stocks, is expected to increase its dividend per share to Rs 16.1 from the current Rs 12.
Bharat Electronics Limited is another dividend play where the DPS is pegged to improve from Rs 3.59 from the current Rs 2.8. NMDC and NHPC are also expected to mirror the trend. Oil India and ONGC are two stocks where the dividend per share might fall this fiscal year, owing to a sharp correction in profits. However, their dividends are also expected to normalise by financial year 2023.
The increase in dividends is likely to be aided by an increase in net profits over the years which would result in an improvement in free cash flow from operations. For all the above-mentioned companies, except ONGC, Oil India, and BEL, ICICI Securities estimates an improvement in free cash flow from operation over the coming years.