The fixed deposit interest rate has been on steady decline since last ten years. Earlier the FD returns use to be in the range of 8 to 9%, but in last few years it has reduced drastically. Now the FD returns are in the range of 3% to 5.5% only. RBI is set to cut the rate further in the coming years, so we can only expect the FD returns to suffer more in the years to come. So this money lying around in fixed deposits are slowly coming out looking for better alternative investment options that are relatively safer and also provides better returns than FD.
In this article, we will cover the top 5 best companies in India which provides higher dividend yield that are greater than bank fixed deposit interest rates.
NLC India Limited is a ‘Navratna’ government of India company in the fossil fuel mining sector in India and thermal power generation. It is one of the best public sector companies in India with a revenue of US $1.6 billion, NLC India has one of the Largest Capacity of Solar Installed. The stock currently trades around Rs.50 available at PE ratio of 6.5 where its book value is Rs.96. It is one of the top public sector company in India that provides dividend yield of 13.9%
Indian Oil Corporation Limited is another top public sector company under the ownership of Ministry of Petroleum and Natural Gas. It is the largest commercial oil company in the country, with a net revenue of US$ 68 Billion. It is ranked 1st in Fortune India 500 list and 117th in Fortune Global 500 list of world’s largest companies. Furthermore, it is India’s largest downstream oil company, a turnover of ₹4,86,256 crore and a net profit of ₹7869 crore.
The stock currently trades around Rs.96 available at PE ratio of 4.6 where its book value is Rs.109. It is second-best top public sector company in India that provides dividend yield of 11.1%
Coal India Limited (CIL) is a Maharatna public sector company under the ownership of Ministry of Coal. It is the largest coal-producing company in the world. The company contributes around 82% to the total coal production in India. It earned revenues of ₹102,185 crore from sale of coal in the financial year 2020. It is one of the most fundamentally strong company in Public sector, it’s a debt free company, and it has been maintaining a healthy dividend payout.
Every year 25,000 employees are retiring and around 7,000 are getting recruited. Retiree salaries are Rs 80,000 a month vs Rs 40,000 a month for a new employee. When they came out with an IPO, they had 3,60,000 employees. Today, they have only 2,70,000 of them. But production has gone up from 400 million tonnes a year to around 600-plus million tonnes. Five years down the line, production will be 1 billion tonnes. Employee count will be 1,80,000 in next five years and employee costs will take up 40 per cent of revenues. So, if that is stagnant over five years with a 50 per cent increase in revenue, Ebitda can go up 2-2.5 times. You are getting it at around 2 times Ebitda with a dividend yield of 10 per cent, which could be 20% in next 2-3 years.
Stock currently trades around Rs.135 available at PE ratio of 6.6 which is less than the industry PE of 24. Coal India maintains a healthy dividend yield of 9.13% Coal India seems to be one of the best stock to invest considering such a steady revenue stream and healthy dividend payout.
Oil India Limited (OIL) is the second-largest Indian government hydrocarbon exploration and production corporation with a Navratna status. It is under the ownership of Ministry of Petroleum and Natural Gas. OIL is engaged in the business of exploration, development and production of crude oil and natural gas, transportation of crude oil and production of liquid petroleum gas. We are bullish on the Oil India counter not because of its immediate growth prospects, but because of its very low valuations. For example, its current price to book (PB) ratio of 0.52 represents strong pessimism in this counter. Though the earnings are expected to be volatile, valuation is cheap if one considers the price to earnings (PE) ratio.
Stock is trading at 123 whereas its book value is 255 and with a good dividend yield of 8.65%. Its PE ratio of 4.16 is much lower the industry PE of 16.7
Power Finance Corporation Ltd. (P. F. C.) is an Indian financial institution under the ownership of Ministry of Power, it is the financial backbone of Indian Power Sector. PFC’s net worth as on 2020 is ₹361,787.26 crore. PFC is the 8th highest profit making CPSE as per the Department of Public Enterprises Survey. PFC is India’s largest NBFC and also India’s largest infrastructure finance company. PFC enjoys the status of Navratna Company in India. PFC is a non-banking financial institution engaged in the business of extending loans to the power sector.
The stock is trading around Rs.110 whereas its book value is 226 and with a good dividend yield of 8.5%. Its PE ratio of 3.15 is lowest than the all other four stocks we discussed above.
When it comes to investing in stocks based on dividends, it’s better to consider public sector companies than private companies, since dividend will be consistent year-on-year. Remember government is the largest shareholders in all these companies, and they make higher revenues from these firms in the form of dividends. And the capital is relatively safer since volatility is much lesser in all these stocks, so we wouldn’t see any big drop in share price in all these stocks, considering a falling interest rate with fixed deposit, investing in these top 5 dividend paying stocks in a better alternative option.