This Stock Comes With A Dividend Of Rs 9 Per Share, Should You Buy?

The board of Coal India on Monday declared a very good dividend of Rs 9 per share. The record date for the dividend is Dec 7 and it goes ex-dividend on Dec 3. The date of payment of "Interim Dividend" is "on and from 21" Dec' 2021," it added.

Should you buy the stock of Coal India?

Last year at the same time, Coal India had declared an interim dividend of Rs 7.5 per share and this year it has given a better dividend. The company is regular on the dividend paying list, is a cash rich and also a debt free company. For the quarter ending Sept 30, the results of the company were not too impressive, but most brokerages are upbeat on the stock.

Recently, brokerage Motilal Oswal hiked the price target on the stock to Rs 200. According to the report, the Coal India stock trades at 3.4x/3x FY22e/FY23e EV/Ebitda, with an attractive dividend yield of 11%.

The brokerage has valued the stock at 4 times FY23e EV/Ebitda with a target price of Rs 200. "We maintain our Buy rating, with a revised target price of Rs 200 per share (from Rs 185 earlier). A surge in coal demand from the Power sector, which could squeeze supplies to non-regulated sectors through e-auctions, remains a key risk as it could hurt profitability," it had said.

Even ICICI Securities had recently suggested a "buy" on the stock with a price target of Rs 234, implying a hefty upside from the current price of Rs 155.

Dividend yield should keep a floor price on the stock

The shares of Coal India have dropped from levels of Rs 200, following a shortage of Coal to the current price of Rs 155. If you buy the stock now, you are also entitled to a dividend of Rs 9 per share, which will bring down the cost of acquisition even further.

We suggest investors to but the stock as demand for coal is surging and prices are likely to remain elevated going forward. The dividend yield is consistently likely to remain over and above that 10% mark and anywhere between 11 and 15%. This makes the stock very attractive as the dividend yields are much better than the interest rates offered by bank deposits.

With the demand for power likely to surge, there is likely to be a corresponding surge in the demand for coal, which should augur well for the company.

At a time when there are threats of a new omicron virus, it would be a good idea to stick to strong dividend paying stocks, as the dividend yield on these companies would put a cap on the stock fall. We have been advising caution to investors not to invest large amounts and hence stick to debt free companies, with a strong track record of paying dividends.

Disclaimer:

Investing in equities poses a risk of financial losses and investors should exercise due caution before a large-scale exposure. Greynium Information Technologies and the author are not liable for any losses caused as a result of decisions based on the article.