Penny stocks can provide high returns in a short period of time. As a result, they attract a lot of attention from investors.
However, these stocks are also prone to huge losses due to their high volatility. Therefore, they are best suited to investors with a high risk profile.
But beneath this volatile share class are a few cents stocks that can provide stability through consistent dividends.
Here are five penny stocks with good dividend yields.
These companies have consistently paid dividends for the past 5 years and have sufficient free cash flows to pay dividends in the future. They are also profitable.
#1 PNB gilts
PNB Gilts has the highest dividend yield among penny stocks with a five-year average dividend yield of 5.4%.
PNB Gilts was one of the first companies to receive a primary dealership license from the Reserve Bank of India (RBI).
It plays a key role in the government lending program by insuring securities and trading fixed income securities such as Treasury bills, interest rate swaps, commercial papers, etc.
The company has pioneered the retail sector of government securities and has a broad customer base ranging from private companies, trust funds, cooperative banks and rural banks.
PNB Gilts significantly reduced its total borrowings by 19% YoY in fiscal 2021. It also has enough free cash flows to pay a dividend equal to the 5-year average (Rs 3.58 per share).
#2 PTL companies
PTL Enterprises, a tire manufacturer, is second on our list.
The current five-year average dividend yield is 5.2%.
PTL Enterprises was founded in 1959 and began commercial production in 1962 at its Kalamassery plant, Kerala.
In 1995, Apollo Tires leased the entire facility on a long-term basis. As a result, the company now only produces tires for Apollo Tires.
Since the facility was leased, the company’s revenue has remained virtually flat.
However, in its latest quarterly results, the company’s net sales increased 17.4% year-over-year, mainly due to an increase in other revenues.
Profits also improved due to lower costs. As a result, the company’s net profit grew 33% year-over-year.
As of fiscal 2021, the company has sufficient free cash flows to pay a dividend equal to the five-year average (Rs 2.65 per share).
The company has consistently paid dividends for the past five years, and the average five-year dividend payout is 36.5%.
NHPC is third on our list with a five-year average dividend yield of 4.8%.
NHPC is owned by the Government of India and is the largest hydroelectricity developer in India with an installed capacity of 7,071 megawatts (on a consolidated basis).
The company sells bulk power to electric utilities in East, North and Northeast India under long-term power purchase agreements (PPA).
With an increasing need for renewable energy sources, the company plays a vital role in providing hydropower to meet peak power requirements in the country when solar power fails to meet electricity requirements.
NHPC recently announced a merger with Lanco Teesta Hydro Power (LTHPL) as a 100% subsidiary. As a result of the merger, LTHPL will be better financed.
According to the company’s latest annual financial results, the company has sufficient free cash flows to pay out a dividend equal to its 5-year average (Rs 1.57 per share).
The company has a healthy dividend payout ratio of 49.3% (average over five years) and has paid dividends consistently for the past five years.
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 provides advisory services to its clients.
The company makes 97% of its total loans to public sector companies and most of these advances are covered by budget allocations. Therefore, the company has a relatively low exposure to credit risk.
While facing an increasing level of competition from banks and financial institutions, HUDCO 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 flows to pay a dividend equal to the 5-year average (Rs 1.44 per share).
The average dividend payout over five years is 20.4%.
#5 Track Vikas Nigam
Rail Vikas Nigam (RVNL), the executive arm of Indian Railways, is the last stock on our list of high-dividend-yielding penny stocks.
The company’s current 5-year average dividend yield is 3.1%.
RVNL was founded with two main objectives. Firstly, to carry out projects in the field of rail infrastructure. Second, to raise budget funds for special vehicle (SPV) projects.
The company carries out the rail projects on behalf of the Ministry of Railways.
It has established 38 Project Implementation Units (PIU) in 26 locations across the country to efficiently execute projects.
As of fiscal 2021, the company has sufficient free cash flows to pay a dividend equal to the 5-year average (Rs 1.12 per share).
The company’s average five-year dividend payout ratio is 39.6%.
Dividend paying penny stocks are a good source of regular income…but
Distributing stocks offer investors dual benefits.
By investing in stocks that pay dividends, 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 ensure stable returns.
However, you should be careful when choosing stocks with a high dividend yield. Check the company’s history of dividend payments. A minimum of five years is essential.
Then look at the annual accounts. Companies with good profitability, high free cash flows 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 risk tolerance.
Since you are interested in dividend stocks, you can use Equitymaster’s stock screener to check the high-dividend growth stocks and the best dividend-paying stocks.
Have fun investing!
Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.
(This article is from Equitymaster.com)
(This story was not edited by DailyExpertNews staff and was generated automatically from a syndicated feed.)