Penny stocks can give high returns in a short span of time. As a result, they attract a lot of investor attention.
However, these stocks are also prone to huge losses due to high volatility. Hence, they best suit investors with a high-risk profile.
Yet among this volatile stock category are a few penny stocks that can provide stability through consistent dividends.
Here are five penny stocks with good dividend yields.
These companies have been consistently paying dividends in the last 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 licence by the Reserve Bank of India (RBI).
It plays a key role in the government borrowing program by underwriting securities and trading in fixed income securities like treasury bills, interest rate swaps, commercial papers, etc.
The company has pioneered retailing of government securities and has a wide client base ranging from individuals' corporates, provident fund trusts, co-operative banks, and rural banks.
PNB Gilts considerably reduced its total borrowing by 19% year on year (YoY) in the financial year 2021. It also has enough free cash flows to pay a dividend equivalent to its 5-year average (Rs 3.58 per share).
#2 PTL Enterprises
PTL Enterprises, a tyre manufacturing company, is second on our list.
Its current five-year average dividend yield is 5.2%.
PTL Enterprises was incorporated in 1959 and started its commercial production in 1962 at its manufacturing plant in Kalamassery, Kerala.
In 1995, Apollo Tyres leased out the entire facility on a long-term basis. As a result, the company now manufactures tyres solely for Apollo Tyres.
Since its facility is leased out, the company's sales have pretty much remained the same.
However, in the last quarterly results, the company's net revenue went up by 17.4% YoY mainly due to an increase in other income.
Its profits also improved due to lower expenses. Consequently, the company's net profit grew by 33% YoY.
As of the financial year 2021, the company has enough free cash flows to pay a dividend equivalent to its five-year average (Rs 2.65 per share).
The company has been consistently paying dividends in the last five years and its five-year average dividend payout stands at 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 India's largest hydroelectricity developer with an installed capacity of 7,071 megawatts (on a consolidated basis).
The company sells bulk power to power utilities to eastern, northern, north-eastern 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 the peak power requirements in the country when solar power fails to fulfil electricity requirements.
Recently, NHPC announced a merger with Lanco Teesta Hydro Power (LTHPL) as a 100% subsidiary. The merger will enable better funding for LTHPL.
As per the company's latest annual financial results, the company has enough free cash flows 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 been consistently paying dividends in the last 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 offers consultancy services to its clients.
The company extends 97% of the total loans to public sector companies and most of these advances are backed by budgetary allocation. Hence the company has relatively low exposure to credit risk.
Though HUDCO is facing an increasing level of competition from banks and financial institutions, it is among the leading financial institutions in the public sector supporting housing and infrastructure initiatives in the country.
As of financial year 2021, the company has enough free cash flows to pay a dividend equivalent to its 5-year average (Rs 1.44 per share).
The five-year average dividend payout stands at 20.4%.
#5 Rail Vikas Nigam
Rail Vikas Nigam (RVNL), the execution arm of Indian Railways, is the final stock on our list of high dividend yield penny stocks.
The company's current 5-year average dividend yield is 3.1%.
RVNL was incorporated with two main objectives. First, to implement projects relating to rail infrastructure. Second, to 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 established 38 Project Implementation Units (PIU) at 26 locations across the country to execute projects efficiently.
As of financial year 2021, the company has enough free cash flows 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 dual benefits to investors.
By investing in dividend paying stocks, you not only benefit from capital appreciation but also earn regular income in the form of dividend payments. Even in times of high market volatility, dividend payments provide stable returns.
However, you need to practice caution while picking stocks with high dividend yields. Check for 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 flows, and low debt tend to pay more dividends than others.
Finally, do not forget that penny stocks are very volatile, and invest in them only if you have a high tolerance for risk.
Since you're interested in dividend stocks, use Equitymaster's stock screener to check the high dividend growth stocks and top dividend paying stocks.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
(This article is syndicated from Equitymaster.com)
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)