Motilal Oswal’s 8 high conviction bets with strong dividend yield

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At the time when benchmark equity indices BSE Sensex and NSE Nifty are at their all-time high levels, select investors on Dalal Street must be looking for high dividend yield stocks as they provide a margin of safety and stable growth over a period of time.

The dividend yield is a financial ratio that measures the quantum of cash dividends paid out to shareholders relative to the market value per share. A high dividend-paying company also means that they are less risky and offer consistent growth along with logging large cash in their books.

Brokerage firm Motilal Oswal Financial Services handpicked eight companies across sectors with sound fundamentals, free cash flow and healthy dividend yield. Have a look.

Indian Oil Corporation: The oil marketing company will deliver better gross refining margins (GRMs) and marketing margins with increasing demand upon the opening of the economy. IOC declared a total dividend of Rs 12 per share in FY21 which translates to a yield of 10% on the current market price. Motilal Oswal Financial Services expects the dividend payout to remain strong over FY22–23E as well.

Coal India: The brokerage expects Coal India’s profitability to recover sharply in FY22 due to improvement in realisations and recovery in demand. With a dividend yield of 8%, the company remains attractively valued.

Hindustan Zinc: Outlook for zinc and silver prices remain strong which would be beneficial for Hindustan Zinc. Motilal Oswal expects a good dividend yield and 9% CAGR in Hindustan Zinc volumes over FY21–23E, which would drive a 19% EBITDA CAGR.

ITC: ITC’s focus on FMCG business has been impressive. The company sees a surge in demand for staples, convenience foods and health and hygiene products going forward. A dividend yield of 5-6% is expected over the next two years.

IIFL Wealth: IIFL Wealth Management has evolved into one of the best wealth management franchises in India. It is one of the largest alternate asset managers, with a unique product offering. A dividend yield of 6% looks attractive.

Power Grid: The company’s longer-term picture remains intact as an investment in renewable energy and growth in power demand would necessitate the need for transmission works. Current valuations and 6% FY21E dividend yield remain attractive for a company with steady RoEs of around 17%.

Oil India: Oil India’s oil and gas production volumes are expected to recover from its five fields with the economic recovery going forward. The stock looks attractive with a strong dividend payout expectation of over 50%.

Ambuja Cement: The company is continuously focusing on cost reduction and increasing volume growth with its presence in different regions. Motilal Oswal Financial Services expects a volume CAGR of 11% over CY20-23E. A dividend yield of 5% looks very attractive.