Best High Dividend Stock 2024: Vedanta vs Coal India

If you've been investing long enough, I'm sure you remember the Covid crash of 2020. And the volatile period during the Russia-Ukraine war in 2022.

Stock markets across the globe rattled investors, falling drastically in quick session, as investors frantically pulled out their money.

During these uncertain times, investors heavily relied on dividend stocks for consistent returns.

Dividend investing is a proven strategy that investors rely on... several studies suggest that dividend-paying stocks generate higher returns in the long term compared to non-dividend-paying stocks.

Usually, dividend stocks pay regular dividends and increase them consistently every year.

Such stocks, also popularly known as 'Dividend Aristocrats', are considered stable, fundamentally strong, and have high growth prospects.

In this article, we compare two such dividend aristocrats, Coal India and Vedanta.

Time and again, these two companies have stood out and paid higher dividends and become synonymous when it came to true dividend stocks, so let's compare them on various parameters to see which one is a better dividend stock.

Business Overview

# Vedanta

Vedanta is a diversified natural resource company engaged in exploring, extracting, and processing minerals and oil and gas.

Some of the metals the company is engaged in mining are zinc, lead, silver, copper, aluminium, iron ore, nickel, and oil and gas.

It is the only producer of nickel in India, the largest private sector crude oil producer, and the largest iron ore miner in India, giving it a near monopoly status.

Apart from a strong presence in India, it operates in Namibia, South Africa, UAE, Australia, and Ireland.

Over the years, the company also ventured into commercial power generation, steel manufacturing, port operations in India, and manufacturing of glass substrates in South Korea and Taiwan.

# Coal India

Coal India is India's state-owned coal mining corporation and the world's largest coal producer.

It operates over 84 mining areas spread across eight states in India and contributes around 80% of the nation's entire coal output.

It supplies most of its output to the power sector, forming a critical component of India's economy. Despite India's push for renewable energy, coal is here to stay.

Apart from the power sector, Coal India supplies steel, cement, fertiliser, and a host of other industries.

Dividend Payout Per Share

# Vedanta

Vedanta has been paying dividends continuously since 1994 without a single-year gap in between.

In 1994, the company paid a dividend of just Rs 1.65 per share and in financial year 2023, the company paid an astonishing dividend of Rs 101.5.

This is the highest-ever dividend for the company in the last 20 years.

In the financial year 2023, the company decided to increase its dividend payout per share and declared five interim dividends.

The total dividends it declared for 2023 were Rs 377 billion (bn), 2.26 times higher than the previous year.

In the financial year 2024, the company has already declared three interim dividends, adding up to Rs 40.5 per share. More interim dividends and a final dividend are yet to be declared for the current financial year.

Take a look at the table below to get a gist of Vedanta's rich history of paying dividends.

Vedanta's Dividend History

Year Ending	Dividend Amount(Rs m)	Dividend per share (Rs)	Face value (Rs)
31-Mar-23	3,77,878	101.58	1
31-Mar-22	1,66,890	45	1
31-Mar-21	35,190	9.5	1
31-Mar-20	14,440	3.9	1
31-Mar-19	70,050	18.9	1
31-Mar-18	78,810	21.2	1
31-Mar-17	73,240	19.5	1
31-Mar-16	20,354	3.5	1
31-Mar-15	12,156	4.1	1
31-Mar-14	9,636	3.3	1
31-Mar-13	87	0.1	1
31-Mar-12	3,476	4	1
31-Mar-11	3,042	3.5	1
31-Mar-10	2,701	3.3	1
31-Mar-09	1,771	2.3	1
31-Mar-08	1,771	45	10
31-Mar-07	1,575	40	10
31-Mar-06	1,575	40	10
31-Mar-05	886	22.5	10
31-Mar-04	197	10	10
31-Mar-03	49	2.5	10
31-Mar-02	59	3	10
31-Mar-01	59	3	10
31-Mar-00	30	1.5	10
31-Mar-99	49	2.5	10
31-Mar-98	49	2.5	10
31-Mar-97	49	2.5	10
31-Mar-96	46	2.5	10
31-Mar-95	30	1.7	10
31-Mar-94	24	1.65	10

Data Source: Ace Equity

# Coal India

Although Coal India does not have a long history of paying dividends like Vedanta, it is undoubtedly rich.

The company started paying dividends in 2004.

For the financial year 2023, the company declared a dividend of Rs 24.25 per share, which is 40% higher than the previous year.

It declared two interim and one final dividend, adding up to a whopping Rs 149 bn.

For the current financial year, the company declared one interim dividend of Rs 15.25 per share and has yet to declare an interim and final dividend.

Take a look at Coal India's dividend history.

Coal India's Dividend History

Year Ending	Dividend Amount(Rs m)	Dividend per share (Rs)	Face value (Rs)
31-Mar-23	1,49,446	24.25	10
31-Mar-22	86,278	17	10
31-Mar-21	77,034	16	10
31-Mar-20	73,953	1	10
31-Mar-19	81,056	13.1	10
31-Mar-18	1,02,422	16.5	10
31-Mar-17	1,23,528	19.9	10
31-Mar-16	1,73,068	27.4	10
31-Mar-15	1,30,749	20.7	10
31-Mar-14	1,83,175	29	10
31-Mar-13	88,429	14	10
31-Mar-12	63,164	10	10
31-Mar-11	24,634	3.9	10
31-Mar-10	22,100	3.5	10
31-Mar-09	17,054	270	1000
31-Mar-08	17,054	270	1000
31-Mar-07	15,000	237.5	1000
31-Mar-06	12,633	200	1000
31-Mar-05	2,745	43.5	1000
31-Mar-04	1,011	20	1000

Data Source: Ace Equity

If we compare the dividend payouts of both companies, Vedanta has consistently increased its dividend payout per share over the last few years.

Coal India, on the other hand, saw its dividend payout fall consistently in the last ten years. Back in 2014, the company paid a dividend of Rs 29 per share, and in 2023, it stood at Rs 24.25 per share.

In contrast, Vedanta's dividend payout per share grew continuously and increased from Rs 3.3 in 2014 to Rs 101.6 in 2023.

Also, in the last five years, the dividend per share of Coal India has grown at a compound annual growth rate (CAGR) of 13.1%, whereas Vedanta's grew at a CAGR of 40%.

Here's a table comparing the two companies on dividend payout per share.

Vedanta vs Coal India - Dividend Payout Per Share in Recent Years

Dividend Payout per share (Rs)	FY19	FY20	FY21	FY22	FY23	5-year CAGR
Vedanta	18.86	3.9	9.51	45.03	101.58	40.00%
Growth (%)		-79.30%	143.80%	373.50%	125.60%
Coal India	13.1	12	16	17	24.25	13.10%
Growth (%)		-8.40%	33.30%	6.30%	42.60%

Data Source: Equitymaster

Dividend Yield

The dividend yield is the return an investor will get in comparison to the current price of a company they invested in.

A high dividend yield makes a stock attractive in comparison to others.

But why is dividend yield an important parameter to look at?

When the interest rates in the market rise and markets become volatile, high dividend yield stocks come to the rescue by offering stable returns.

Moreover, during a market selloff, these stocks are available at a bargain and have a high margin of safety, providing an opportunity to earn high returns.

Let's see how Vedanta and Coal India compete on dividend yields.

# Vedanta

In 1994, Vedanta's dividend yield was just 0.3%, and over the years, it has increased exponentially to reach 38%.

Ever since its listing in 1996, Vedanta's dividend yield was below 1% only five times.

In the financial year 2023, the dividend yield of the company was 31.4%, taking into consideration its end-of-year (eoy) share price.

In the last year, Vedanta's share price fell by over 15%, which pushed the current dividend yield higher to 38.5%.

# Coal India

Coal India has consistently maintained its dividend yield above 5% in the last ten years.

In fact, it is now in the elite class of companies, having yields around 9-10%.

For the financial year 2023, the company's dividend yield was 11.3%.

As its share price increased over 75% in the last year, the company's current dividend yield is 6.2%.

Vedanta vs Coal India - Dividend Yield

Dividend Yield (%)	FY19	FY20	FY21	FY22	FY23
Vedanta	8.20%	3.00%	6.50%	14.30%	31.40%
Coal India	5.10%	6.20%	11.70%	10.40%	11.30%

Data Source: Equitymaster

If we compare the two companies, Coal India is leading against Vedanta.

Coal India has paid hefty dividends to its shareholders consistently, and the same is reflected in its dividend yield.

In the last five years, Coal India has achieved a higher dividend yield, two out of five times when compared to Vedanta.

However, due to falling share price, Vedanta has taken ahead of Coal India in the last two years with a high dividend yield of 31.4%.

Dividend Payout Ratio

The dividend payout ratio is measured by the amount of dividend a company pays in a year divided by the net profit for the year.

A high or growing dividend payout ratio is preferred by investors.

# Vedanta

Vedanta's dividend payout ratio in financial year 2023 was 260.3%, the highest ever for the company.

From a decent start ranging from 10-30%, the company has grown its dividend payout ratio consistently over the years.

# Coal India

Coal India's dividend payout ratio in the financial year 2023 was 53.1%.

The company has always maintained its dividend payout ratio in the range of 40-80% consistently.

Vedanta vs Coal India - Dividend Payout Ratio

Dividend Yield (%)	FY19	FY20	FY21	FY22	FY23
Vedanta	72.30%	-30.60%	23.50%	70.60%	260.30%
Coal India	46.20%	44.30%	77.60%	60.30%	53.10%

Data Source: Equitymaster

If we compare the two companies in terms of dividend payout ratio, then Coal India has maintained consistency when compared to Vedanta.

Vedanta has posted losses for a few years, which affected its dividend payout ratio, whereas Coal India has maintained its payout ratio constant.

Can Vedanta and Coal India Continue to Pay High Dividends?

A company pays dividends from its earnings, and hence, dividends are only sustainable to the extent a company's earnings are sustainable.

If, for some reason, dividends were to decline, the high dividends of today may count for nothing.

Also, dividend payments are highly dependent on the management policy.

Therefore, even a dividend paymaster can become a dividend dud.

Let's analyse whether Vedanta and Coal India will be able to continue their dividend-paying streak in the future.

# Vedanta

Vedanta saw its operational performance improve post-Covid due to a sharp increase in the prices of commodities.

Hence, the company declared high dividends to share its super normal profits.

However, with commodity prices correcting, the profit margins have contracted to pre-Covid levels. Therefore, the high dividend payments may not continue.

The same is also reflected in the company's dividends this year.

In the financial year 2023, the company already declared three interim dividends before the end of the third quarter, which was around Rs 68.5. But in the current financial year, the company declared three interim dividends totalling Rs 40.5 by the end of the third quarter.

Falling profits, along with low liquidity in the market, affected the company's dividend payments in the current financial year.

To add to this, the company recently said that it will cut its debt by US$ 2 bn (Rs 166.24 bn) by the next financial year.

Vedanta has also invested in growth capex for its aluminium, zinc, and oil and gas businesses and will incur a significant capex in the next financial year as well.

The company is slowly diversifying its operations and foraying into high-growth sectors. It recently forayed into the manufacture of semiconductor and display units.

With low profits, deleveraging plans, and high capex, the company might not pay high dividends like it did in the previous financial years.

# Coal India

The entire world is shifting from coal to renewable energy. This will impact the demand for coal significantly over the next few years.

However, until renewable energy dominates the energy sector, coal will continue to have the upper hand in India.

With an abundance of coal reserves and Coal India's near-monopoly status, the company has been enjoying high profits.

Moreover, the money it invested in modernising its plants has helped improve productivity, keeping the profit margins steady.

Coal India has incurred significant capex in the last few years to reduce its carbon footprint. It plans to invest another Rs 200 bn in the next few years to set up solar power plants, thermal power plants, and revive fertiliser plants.

It is also investing in increasing its mining and coal-washing capacity and improving rail infrastructure.

Such huge capex can affect the company's free cash flows. Moreover, Coal India, being a cyclical stock, can see huge fluctuations in its earnings if coal prices fluctuate.

This can impair the company's dividend-paying capacity.

However, market experts are of the view that despite the proposed capex, the company will be able to continue its high dividend payout streak.

Vedanta or Coal India: Which Dividend Stock is Better?

Both companies are dividend paymasters and have their A-game when it comes to dividends.

Vedanta has a higher dividend payout per share, whereas Coal India has a consistent dividend payout ratio and dividend yield.

However, in terms of growth prospects, Vedanta is one step ahead as the company has a presence in high-growth businesses like semiconductors and has a monopoly on nickel, which is an important raw material for EV batteries.

Coal India, on the other hand, has a near-monopoly in the industry. Until renewable energy has a major share in power generation, coal will continue to dominate.

In conclusion, both companies will continue to pay good dividends, but Vedanta has a higher chance of paying better dividends in the long term.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...