Power Sector Lifeline: A Navratna Co that Pays 14% Dividend!

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There is no dearth of investors who are inclined towards high dividend-paying companies. A regular cash flow in the form of dividends not just helps to generate an additional income from the stock market but also helps to minimize the total cost of the acquisition of shares with every payout. 

When it comes to high dividend-paying stocks, no list is complete without including REC Limited, formerly known as Rural Electrification Corporation (NS: RECM ). It is a Navratna company and comes under the Ministry of Power and is in the business of providing financial services to the complete power sector value chain. To be precise, the company provides financial aid to independent power producers, state/center and private sector utilities, state electricity boards, etc. 

The company has a market capitalization of INR 27,806 crores and its shares are relatively less volatile, making it an ideal choice for long-term and low-risk investors. FY22 was the best year for the company as it posted a record revenue of INR 24,129.93 crores which was 17.4% higher than FY21 revenue of INR 20,549.89 crores. A record high revenue also led to the highest-ever profit of INR 10,035.7 crores in FY22 which was also the first time REC crossed the INR 10,000 crores profit mark. 

The valuations look mouth-watering. The stock trades at less than the book value, with a P/B ratio of 0.64 while the P/E ratio stands at a mere 2.77. This low P/E ratio in the specialized finance space is hard to find. This is despite the fact that the stock has run up quite a lot in the last two months. After it marked a bottom of INR 82.25 (bonus-adjusted) on 20 June 2022, it rallied to a 9-month high of INR 108.7 today, delivering a healthy gain of 32.1%. Indian Railway Finance Corp (NS: INID ) and Housing and Urban Development Corporation Ltd (NS: HUDC ) which provide specialized financial services to the railway and the housing sectors, respectively are currently trading at a P/E ratio of 4.52 and 4.64, respectively.  

The dividend is the main attraction for REC. The stock trades at a lucrative dividend yield of 14.49% but more importantly has never skipped a payout in over a decade, including FY21 which was a tough year for the economy. In fact, during that fiscal year, when companies were struggling to stay afloat, REC actually recorded a 68.5% YoY growth in net income and paid a dividend of INR 9.53 per share. As of FY22, the current payout ratio stands at 0.4 which is up from 0.3 in FY21 and the total dividend payout stood at INR 15.3 per share in FY22.


Disclaimer - Any mentioned security in the above article should not be taken as a recommendation to buy/sell/hold. I hold REC in my portfolio.

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