Cheap valuations, high dividend yields make these 3 PSU stocks attractive | Economic Times

ET Intelligence Group: The recent share buyback by HPCL, the ongoing disinvestment of BPCL, and higher interim dividend by REC indicate one thing -- public sector undertakings (PSUs) would be generous in returning profits to the government in the current fiscal year, given the widening fiscal deficit amid stimulus packages to revive the economy.Multi-year low valuations, high dividend yields, share buybacks since they reduce the supply of shares in the market, and disinvestments are some of the factors that make PSU stocks attractive. ETIG lists three such stocks that have been historically paying high dividends and are likely to show a turnaround in operations.Coal IndiaThe company’s cash balance of around Rs 22,000 crore at the end of September 2020 is 30% of its market capitalization. The country’s largest coal miner delivered 25% year-on-year volume growth in each of the two months to October. Its trailing price-earnings (P/E) multiple of four is the lowest since its listing in 2010. Its enterprise value (EV) is 2.5 times the operating profit before depreciation (EBITDA). Its FY20 dividend yield is 10% while FY21 estimated yield is 12%. While stake sale by the government has kept the stock price depressed, lower valuation may discourage a further sale off.NMDCThe country’s largest iron ore miner has Rs 15,000 crore cash and equivalents, over 50% of its market capitalization. Its EV/EBITDA is 4.8 and P/E is 6.9 times. The FY21 expected dividend yield is 6.3. The company has raised prices by 15-20% over the past two months. The trend may continue given the faster rise in the global steel prices. Demerger and potential stake sale in its steel plant would be another trigger.NALCOOver 35% increase in LME aluminum prices from the 2020 lows would benefit the country’s largest and lowest cost aluminum miner. Despite the lockdown, aluminum volume fell by just 3% and alumina volume rose by 2% year-on-year in the September quarter. Its current EV/EBITDA is 3.6 and P/E is 12. The FY20 dividend yield is eight and the FY21 forward yield is 7.6.