REC Ltd is a Cash Cow: Destiny Dividend Vol 1

We all have seen that PSUs don’t give good returns when compared to private companies in the form of capital returns. But what we all fail to see is that capital returns are not the only way of recovering your investment. PSUs are the frontrunners when it comes to dividends.


When it comes to PSUs, there is something you should Know:

There is something called as the DIPAM guidelines which was issued by the Department of Public Enterprises (DPE). These gives out some guidelines that every PSUs are supposed to follow. One of the guidelines is that dividend payout of the company should be minimum 30% of PAT or 5% of Free Reserves whichever is higher. Therefore you can be assured that owning shares of PSUs will not disappoint you when it comes to dividends.


Click Here to Know more about the DIPAM Guidelines.

RicherInvestor.com has identified some of the best PSUs that are your Cash Cows when it comes to dividend. The company that we are gonna talk about today is REC Ltd. REC Ltd is a PSU that works in the business of Power financing. India being a developing Country and also considering the strength of its population can be said to be a power hungry Country. The company has its registered office in New Delhi and comes under the Ministry of Power. Considering the fact that REC Ltd is a PSU if we look closely at the dividend declared by the company, we observe that it has recently declared Rs 7 per share as interim dividend. The market price of the share has been wavering around Rs 140 to 155 levels and recently reached 160 levels. Now assuming that we buy the share at Rs 150, Dividend of Rs 7 is almost 5% tax free return on your investment. Further the company is yet to declare its final dividend. Assuming that the final dividend is Rs 3 the total dividend income goes to Rs 10. Which means the return on investment is 6.67% which is almost equal to FD rate of return. But this is tax free. Therefore assuming 30% tax slab the pre tax return shall be 9.53% which is very much ahead of any return on Deposits.


We must also consider the potential of capital gains. Even though PSUs are not a blazing horse in terms of capital return something can be considered better than nothing. So a considerable amount of increase in the market value also can be expected which shall add to the return value of 9.53%.

Let me give you some fundamentals about the company so as to know the kind of company you are gonna own:


The company has a turnover of Rs 23638.35 Crs yielding a Net Profit of Rs 5627.66 Crs, which makes the Net Profit ratio at approx 24%. That means every 100 Rs they earn they are getting a profit of 24 Rs post tax. That’s really good.

The company’s EPS which is the total profit divided by the total no of shares is Rs 57. The current market price is only Rs 150. Which means that the PE less than 3. I mean if this company is not heavily undervalued then I don’t know what is.


This is an awesome company to be kept in your portfolio on a long term basis to enjoy its fruits for years to come.



Thanks for joining us. Have a nice day. 
- RicherInvestor

Written by Roger Vins (CA, MCom)

Disclosure:
Financial interest in the company is not greater than 0.1% of Share Capital.
The author is not a research analyst.

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