Penny stocks can give high returns in a short period of time. As a result, they attract a lot of investor attention.
However, these stocks are also prone to huge losses due to the high volatility. Therefore, they are best suited for investors with a high risk profile.
Yet among this category of volatile stocks are a few penny stocks that can provide stability through consistent dividends.
Here are five penny stocks with good dividend yields.
These companies have paid dividends consistently over the past 5 years and have sufficient free cash flow to pay dividends in the future. They are also profitable.
# 1 GNP Gilts
PNB Gilts has the highest dividend yield among penny-listed stocks with a five-year average dividend yield of 5.4%.
PNB Gilts was one of the first companies to receive a Master Dealer license from the Reserve Bank of India (RBI).
It plays a key role in the government’s borrowing program by underwriting securities and trading in fixed income securities such as treasury bills, interest rate swaps, commercial paper, etc.
The company was a pioneer in the retailing of government securities and has a large customer base ranging from sole proprietorships, provident funds, cooperative banks and rural banks.
PNB Gilts significantly reduced its total borrowing by 19% year-on-year in fiscal 2021. It also has enough free cash flow to pay a dividend equivalent to its 5-year average (Rs 3.58 per share). ).
# 2 PTL companies
PTL Enterprises, a tire manufacturing company, is second on our list.
Its current five-year average dividend yield is 5.2%.
PTL Enterprises was incorporated in 1959 and began commercial production in 1962 at its manufacturing facility in Kalamassery, Kerala.
In 1995, Apollo Tires leased the entire facility on a long-term basis. As a result, the company now manufactures tires only for Apollo Tires.
Since its facilities have been leased, the company’s sales have remained roughly the same.
However, in the latest quarterly results, the company’s net sales increased 17.4% year-on-year, mainly due to an increase in other income.
Its profits also improved thanks to lower expenses. As a result, the company’s net profit increased 33% year-on-year.
As of fiscal 2021, the company has sufficient free cash flow to pay a dividend equivalent to its five-year average (Rs 2.65 per share).
The company has paid dividends consistently over the past five years and its five-year average dividend is 36.5%.
# 3 NHPC
NHPC is third on our list with an average five-year dividend yield of 4.8%.
NHPC is owned by the Indian government and is India’s largest hydropower developer with an installed capacity of 7,071 megawatts (on a consolidated basis).
The company sells electricity in bulk to electric utilities in eastern, northern and northeastern India under long-term power purchase agreements (PPAs).
With a growing need for renewable energy sources, the company plays a critical role in providing hydropower to meet the country’s peak energy needs when solar power fails to meet electricity needs.
Recently, NHPC announced a merger with Lanco Teesta Hydro Power (LTHPL) as a wholly owned subsidiary. The merger will allow better financing of LTHPL.
According to the company’s latest annual financial results, the company has enough free cash flow to pay a dividend equivalent to its 5-year average (Rs 1.57 per share).
The company has a healthy dividend payout ratio of 49.3% (five-year average) and has paid dividends consistently over the past five years.
# 4 HUDCO
Housing & Urban Development Corporation (HUDCO) is next on our list with a five-year average dividend yield of 3.5%.
This miniratna company focuses on financing social housing and infrastructure projects in the country. It also offers infrastructure financing and advisory services to its clients.
The company grants 97% of total loans to public sector companies and most of these advances are backed by budget allocations. The company is therefore relatively little exposed to credit risk.
Although HUDCO faces increasing competition from banks and financial institutions, it is among the leading public sector financial institutions supporting housing and infrastructure initiatives in the country.
As of fiscal 2021, the company has sufficient free cash flow to pay a dividend equivalent to its 5-year average (Rs 1.44 per share).
The average dividend over five years is 20.4%.
# 5 Rail Vikas Nigam
Rail Vikas Nigam (RVNL), the executing arm of Indian Railways, is the latest stock on our list of high dividend yielding penny stocks.
The company’s current average dividend yield over 5 years is 3.1%.
RVNL was formed with two main objectives. First, to implement projects relating to railway infrastructure. Second, raise budgetary resources for Special Purpose Vehicle (SPV) projects.
The company works on behalf of the Ministry of Railways to execute the railway projects.
It has set up 38 Project Implementation Units (PSUs) in 26 sites across the country to execute projects effectively.
As of fiscal 2021, the company has sufficient free cash flow to pay a dividend equivalent to its 5-year average (Rs 1.12 per share).
The company’s five-year average dividend payout ratio is 39.6%.
Dividend-paying penny stocks are a good source of regular income … but
Dividend paying stocks offer a double benefit to investors.
By investing in dividend paying stocks, you not only benefit from capital appreciation, but you also earn regular income in the form of dividend payments. Even in times of high market volatility, dividend payments offer stable returns.
However, you should be careful when choosing stocks with high dividend yields. Check the company’s dividend payment history. A minimum of five years is essential.
Then look at the financial statements. Companies with good profitability, high free cash flow, and low debt tend to pay more dividends than others.
Finally, remember that penny stocks are very volatile, and only invest in them if you have a high tolerance for risk.
Since you’re interested in dividend-paying stocks, use Equitymaster’s Stock Filter to check for high-dividend-growing stocks and top-paying stocks.
Warning: This article is for informational purposes only. This is not a stock market recommendation and should not be treated as such.
(This article is syndicated from Equitymaster.com)
(This story was not edited by NDTV staff and is auto-generated from a syndicated feed.)