2 Dividend Stars Reducing Portfolio Losses with ‘Hefty Payouts’!

  • Stock Market Analysis

Dividends, which are a part of the net earnings and distributed amongst shareholders is one of the best ways to minimize portfolio drawdowns during a volatile or down-trending market. These payouts in the form of regular income help to offset notional losses with the realized gains, hence giving investors some cushion to sustain losses.

However, these dividends have to be decently high and regular to make a noticeable impact. Listed below are two companies that are currently trading at a mouth-watering double-digit yield, have consistency in their payout and have been clocking an upward trend in their earnings growth which helps ensure the future sustainability of their payouts.

REC Limited

REC is one of the all-time favorite stocks of investors. Formerly known as Rural Electrification Corporation (NS: RECM ), this specialized financial institution provides lending services for power generation, transmission, and distribution projects in India. The company has a market capitalization of INR 27,076 crores and trades at a P/E ratio of a mere 2.7, compared to the industry’s average of 20.91, making it one of the most undervalued stocks in this sector. The P/B ratio is also less than 1, at 0.62, while the sector’s average is 2.22.

Dividend payout history of REC (CY-wise) for the last 9 years

Image Description: Dividend payout history of REC (CY-wise) for the last 9 years

Image Source: Investing Pro 

Currently, the share price of REC is trading at a dividend yield of a lucrative 12.4% and declared a total dividend of INR 15.3 per share in FY22 over an EPS of INR 50.82, translating into a payout ratio of 0.3. Since FY16, the company’s dividend payout ratio has remained at 0.3 or above. Looking at the net earnings trend, REC is clocking a yearly growth rate of 9.71% over the last five years.

Power Finance Corporation Limited

Power Finance Corporation Ltd (NS: PWFC ) is a name that generally comes automatically to investors’ minds when looking at REC. It is also a niche finance provider to the power sector in India and has a market capitalization of INR 31,878 crores. The company is available at a slightly lower valuation than REC, with the P/E ratio at 2.27 and the P/B ratio at 0.39. Just like REC, it is a low-beta counter and therefore does not give any volatility concerns to investors.

Dividend payout history of PFC (CY-wise) for the last 9 years

Image Description: Dividend payout history of PFC (CY-wise) for the last 9 years

Image Source: Investing Pro 

The share price of PFC is trading at a high dividend yield of 11.59%, with the company shelling out INR 12 per share of total dividend in FY22, compared to INR 10 per share in the previous financial year. The payout ratio is a bit lower, at 0.23 for FY22. However, the company’s massive yearly growth rate of 44.35% in the net earnings for the last 5 years, coupled with lower valuations than REC makes it a preferred option over REC.

 

Disclaimer: The above article is not a recommendation to buy/sell/hold any security. I hold both PFC & REC in my long-term portfolio.

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