6 PSU stocks offer dividend yields of up to 5-7%; should you buy?

Coal India, Oil And Natural Gas Corporation Ltd (ONGC), National Aluminium Co Ltd (Nalco), REC Ltd (REC) and Power Finance Corporation Ltd (PFC) are among six PSU stocks offering healthy dividend yields of 5-7 per cent. 

Coal India and NMDC commanded a dividend yield of 7 per cent each, based on dividends received in the past 12 months. Among 25 recent analyst recommendations, Coal India has 11 'Strong Buy' calls, four 'Buy', six 'Hold', three 'Sell' and one 'Strong Sell' recommendations, as per Trendlyne.  

In the case of NMDC, the stock is a consensus 'Hold', with 9 out of 18 'Buy' or 'Strong Buy' calls. That said, a brokerage reports suggest 'Buy' on NMDC and cautious stance on Coal India. 

In the case of Coal India, Choice International Equities said while the dividend yield of 7 per cent is optically high, the stock is unattractive in the absence of other value drivers and does not cover cost of equity of 13 per cent. It suggested 'Sell' rating with a target of Rs 290, saying “attractiveness” based on cheap valuation multiples is an optical illusion. Nuvama in note on Coal India said it prefers to wait for resumption of volume growth for any entry into the stock.

On NMDC, MOFSL said volume growth was sluggish in Q1 due to the early onset of monsoon, but NMDC implemented steady price hikes, which offset the adverse volume impact, leading to healthy operating profit. "Going forward, we expect volumes to pick up steadily to 50mt in FY26 and 55mt in FY27, fueled by an increasing EC limit. We largely maintain our estimates for FY26-27, driven by stable realization and healthy volume-led operating growth," it said while suggesting 'Buy' and a target of Rs 84. Nuvama suggested Buy and a target of Rs 85 NMDC. 

Nalco, REC and PFC offered Rs 10-19.50 per share dividends in the past 12 months and commanded dividend yields of 5 per cent each.  

NALCO reported its highest-ever Q1 standalone revenue recently, driven by higher volumes and improved techno-economic parameters, partly offset by lower aluminum prices. 

"Aluminum demand is expected to remain strong with GoI’s resilient power infra push and increasing adoption by automobile manufacturers. Furthermore, the Government of Guinea and Ghana (both major global bauxite producers) have recently revoked some mining permits and along with China’s 45 mtpa aluminum production cap could support alumina and aluminum prices," Antique said while suggesting a 'Buy' and target price of Rs 262 on the stock. 

PFC reported a mixed performance for the quarter as earnings were in line, largely supported by provision write-backs following rating upgrades of certain DISCOMs. 

"Disbursements were healthy during the quarter, but sequential loan growth remained muted. Asset quality remained stable, and credit costs continued to remain benign. Notably, the company saw a ~5bp sequential improvement in NIM, which was a positive," MOFSL said as it retained 'Buy' on the stock. 

In the case of REC, Q1 numbers were healthy with its loan assets growing 3 per cent sequentially despite a seasonally weak quarter. 

"Going ahead, steady margins, healthy asset quality, stable growth outlook and resolution pipeline position REC on a strong footing to deliver RoE of >20% for FY26E/FY27E. With the stock trading at 1.2x / 1.0x FY26E/FY27E, we maintain BUY at an unchanged target of Rs 540, valuing the stock at 1.6x FY26E BV," ICICI Securities.