Welcome to the latest edition of Dividend Hunter Weekly. Last week, we examined a debt-free IT Player with a 32% ROE offering 7% dividend yield. This week, we examine a business built on India’s energy security. Coal India converts rising power demand into strong cash flows, enabling the PSU giant to distribute consistent dividends to shareholders.
Dividend hunters look for companies that can pay sustainable dividends for years to come. Such companies are hard to find, but we can certainly try to estimate their future dividend-paying potential.
In this context, we select stocks that can pay dividends in the upcoming quarters. We select these stocks (excluding InVITs and REITs) using a screen that meets the following broad criteria.
- Dividend yield above 2%.
- Payout ratio below 100%.
- At least one of 3, 5, or 7-year profit growth above 5%.
- Five-year average dividend greater than zero.
- The latest dividend is higher than the five-year average.
- The latest profit is at least 80% of the previous year’s profit.
- Market capitalization above ₹1,000 crore.
After Alldigi Tech, Coal India is the second company to meet these criteria. At current prices, the company offers an exciting 6.0% dividend yield (based on historical payouts, of course).
Let’s dig into the company to see how it is performing and whether that can give us any clues about future payouts.
The Maharatna Giant: Driving 74% of India’s Coal Output
Coal India (CIL) is a state-owned Maharatna company. It is the world’s largest coal-producing and mining company.
CIL’s operations are central to India’s energy security, as the company accounts for nearly 74% of the country’s total coal production. The company meets about 40% of its primary commercial energy requirements.
CIL explores, mines, produces, and sells coal and coal products, including coking and non-coking coal. In FY25, CIL achieved a record coal production of 781.06 million tonnes (MT), and it has set an ambitious roadmap to reach a production target of 1 billion tonnes by FY29.
The company operates a geographically diverse network of 310 working mines spread across eight Indian states. This portfolio includes 168 opencast mines, 129 underground mines, and 13 mixed mines.
Sectoral Tailwinds: Steel & Cement Demand Surge
Additionally, CIL operates coal washeries and First-Mile Connectivity projects, automated rapid-loading systems, and railway infrastructure. This ensures efficient, mechanized coal evacuation from its mines.
The majority of CIL’s coal is supplied to the Power Sector, which relies on it as the primary base-load fuel for electricity generation. In FY25, CIL dispatched 616.17 MT to the power sector and a record 145.31 MT to the non-power sector.
Other major consumer sectors include steel, cement, and fertilizers. The company distributes its coal primarily through long-term Fuel Supply Agreements (FSAs) and e-auctions.
FY25 Financials: Record Revenue Meets Margin Pressure
The company’s market cap is ₹271,436 crore, as of 6 February 2026.
Over the last 3/5/10 years, net profit has grown at 27%/16%/10% CAGR. Revenue was almost flat at ₹143,369 crore in FY25, due to a drop in average selling price. EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) decreased 0.3% to 51,640 crore, with a 36% margin. Net profit declined by 5.5% to ₹35,302 crore, but was 94.5% of last year’s profit (₹37,369 crore).
The financials, however, weakened in FY26.
Financial Performance
Revenue fell by 5.3% year-on-year to ₹34,924 crore, due to a fall in realisation. EBITDA declined 25% to ₹10,285 crore due to an estimated one-time provision of ₹2,201 crore. As a result, margins fell by 791 bps to 29.4%, leading to 15.6% drop in net profit to ₹7,166 crore.
Still, the profit was 84.4% of ₹8,491 crore in the same quarter last year. Return ratios are also strong despite the capital-intensive nature of the business. Return on Average Capital Employed stands at 22.9% (down from 27.3% in FY24) and Return on Average Net Worth at 38.8% (down from 51.1%).
The ₹11,171 Crore Cash and Cash Equivalents
The company is cash-rich, with cash and cash equivalents of ₹11,171 crore and other bank balances of ₹23,055 crore as of 31 March 2025. The company generates strong operating cash flow, which supports its ability to pay dividends. Operating Cash Flow stood at ₹29,200 crore in FY25.
“The 80% Payout Rule: Is Coal India’s Dividend Sustainable?
On the back of such cash flow, the company has already paid an interim dividend of ₹15.75 in FY26 Year-To-Date (YTD). This comprises an interim dividend of ₹10.25 per share (ex-date 4 November 2025) and ₹5.5 per share (ex-date 18 February 2026). This translates to a dividend yield of 3.6% YTD in FY26.
The company is also likely to announce a final dividend after the year-end.
Historically, Coal India has paid a higher dividend each year during the last five financial years. It paid a dividend of ₹26.50 in FY25, translating into a dividend yield of 6% as per the current price of ₹440 per share.
Dividend Paid during FY21-25
Also, this dividend (₹26.50) is well above the 5-year average of ₹19.5 per share. The dividend payout has consistently been less than 80%, well below the 100% threshold required by our filter. Additionally, as a PSU, every Central Public Sector Enterprise is required to pay the higher of 30% of net profit or 5% of net worth.
₹1.72 Lakh Crore Total Dividend Distributed
The DIPAM Rule: Why a 30% Profit Payout is Mandatory
This rule applies to all profitable CPSEs, except those in the specialized financial sector, where regulatory rules may impact capital requirements. This rule with higher profitability suggests continued dividend growth.
The 20-Year Horizon: Balancing India’s Energy Security with a ₹37,000 Crore Green Pivot
CIL anticipates that coal will remain the indispensable fuel in India’s energy portfolio for at least the next two decades. This is expected to be driven by the country’s economic trajectory, low per capita electricity consumption, and growing baseload requirements.
Despite that, to ensure business sustainability and align with India’s Net Zero emission goals, CIL is rapidly diversifying beyond traditional coal extraction into several new, value-accretive revenue streams. Production levels are projected to peak at 1,200 MT by FY35, and 1 BT of annual production will be required through 2047.
Beyond the Pithead: The Roadmap to 9.5 GW Solar Capacity
CIL plans to achieve a renewable energy target of 3 gigawatts (GW) of solar capacity by FY28, and 9.5 GW by FY30. It is integrating solar energy into its mining operations to reduce operational costs and contribute to India’s non-fossil fuel targets.
Also, aligning with the Government of India’s vision to gasify 100 MT of coal by 2030, CIL plans to invest ₹37,050 crore for coal-to-chemical projects over the coming years.
It has formed a joint venture with BHEL and GAIL to produce synthetic natural gas and ammonium nitrate, reducing India’s dependence on imported natural gas and crude oil.
Meanwhile, CIL is venturing into critical minerals (lithium, cobalt, nickel, graphite) to meet the growing demand for clean energy technologies. Recently, it secured the Kawalapur Rare Earth Element Block in Maharashtra and signed an MoU with Hindustan Copper to collaborate in the copper and critical minerals sectors.
The company is strengthening its value chain through forward integration by collaborating with state and central utilities to develop thermal power projects.
Valuation: Is Coal India Trading at a Discount to Peers?
Valuation-wise, CIL trades at an EV/EBITDA multiple of 4.9X, a discount to the 10-year historical median of 7.3X. Relative to Bharat Coking (6.2X) and Sandur Manganese (9.6X), the valuation is at a discount.
Is Coal India a stock that Dividend Hunters should track?
Undoubtedly, Coal India meets the key Dividend Hunter filters. It has a steady profit growth, strong cash flows, and a payout ratio within thresholds. With a 6% yield, higher profitability, and government mandate, dividend continuity looks reasonable.
However, sustainability will depend on future profitability, momentum, and net worth. Dividend hunters should add this stock to their watchlist and see if it continues to deliver a lucrative dividend yield.
Disclaimer:
Note: Throughout this article, we have relied on data from http://www.Screener.in and the company’s investor presentation. Only in cases where the data was unavailable have we used an alternative, widely used, and accepted source of information.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
About the Author: Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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