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  • Jul 2, 2023 - Top 5 Renewable Energy Stocks Which Pay Good Dividends

Top 5 Renewable Energy Stocks Which Pay Good Dividends

Jul 2, 2023

Top 5 Renewable Energy Stocks Which Pay Good Dividends

The energy sector is undergoing a disruptive shift as the market experiences a sudden infatuation with green energy. Investors worldwide are falling head over heels for green energy stocks, driven by the potential for significant returns.

Among them India has emerged as a key player in this transition, actively investing in renewable energy sources and initiating large-scale sustainable power projects.

The country is gradually phasing out traditional hydrocarbon-based energy in favour of cleaner alternatives such as solar, wind, and green hydrogen.

This shift presents an exciting opportunity for investors seeking the next big thing in the market.

By identifying financially sound companies in the renewable energy sector, investors can not only tap into potential growth but also benefit from consistent dividend payouts, creating a reliable income stream.

Here are five companies worth tracking.

#1 L&T

Leading the list is L&T.

Larsen & Toubro Ltd, commonly known as L&T, is an Indian multinational conglomerate with business interests in engineering, construction, manufacturing, technology, information technology, and financial services.

The company has recently forayed into the green hydrogen business.

L&T has remained a consistent dividend payer over the years. Since 2001, L&T has declared 28 dividends.

The five-year average dividend payout ratio stands at 43.2%. The dividend yield over the past five years has averaged 1.7%.

For the financial year 2023, the company has paid a final dividend of Rs 24 per share or 1200% on the face value of Rs 2.

The record date for the same is 2 August 2023.

L&T's Dividend History (2018-22)

  Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Dividend per share (Adj.) * (Rs) 15.9 17.9 17.9 35.9 21.9
Dividend payout ratio (%) 26.6 26.1 24.9 108.3 30.0
Dividend Yield (%) 1.2 1.3 2.2 2.5 1.2
*Adjusted for bonus issues and stock splits
Source: Equitymaster

Going forward, L&T has announced plans for an ambitious green hydrogen space.

The company plans to create renewable energy infrastructure for the world's largest green hydrogen plant in Saudi Arabia.

In this venture, L&T will undertake the engineering, procurement, and construction of various components, including a 2.2 GWAC (Governmentwide Acquisition Contracts) PV solar plant, a 1.65 GW (Giga Watt) wind generation balance of plant, and a 400 MWh battery energy storage system at Oxagon in NEOM.

The project is a collaboration between NEOM Green Hydrogen Company (NGHC), a joint venture between ACWA Power, Air Products, and NEOM.

Additionally, L&T will be responsible for constructing three 380 kV switching stations, 306 km of 380 kV overhead lines, and underground cables required for the kingdom's grid network.

Additionally, L&T has actively engaged in green infrastructure projects, emphasising the construction of sustainable buildings and eco-friendly urban developments.

For more details, see the L&T company fact sheet and quarterly results.

#2 Tata Power

Second, on the list is Tata Power.

It is engaged in the business of power generation, transmission, and distribution. The company also manufactures solar panels and is setting up electric vehicle (EV) charging stations in India.

Tata Power currently generates electricity through both conventional and renewable resources.

Since 2001, Tata Power has declared 24 dividends.

The five-year average dividend payout ratio stands at 21.7%. The dividend yield over the past five years has averaged 1.9%.

For the financial year 2023, the company has paid a final dividend of Rs 1 per share.

Tata Power's Dividend History (2019-23)

  Mar-19 Mar-20 Mar-21 Mar-22 Mar-23
Dividend per share (Adj.) * (Rs) 1.1 1.3 1.6 1.8 2.0
Dividend payout ratio (%) 12.9 24.3 33.4 21.3 16.8
Dividend Yield (%) 1.8 4.7 1.5 0.7 1.1
*Adjusted for bonus issues and stock splits
Source: Equitymaster

Going ahead, the company has announced a massive Rs 750 billion (bn) capex to increase the share of renewable energy in its portfolio to 60% by 2027, taking the total installed capacity to 30,000 MW.

It also plans to set up around one lakh EV charging stations by 2026 to support the EV revolution and invest Rs 30 bn in setting up a 4-gigawatt solar plant in Tamil Nadu. It plans to become net zero by 2024 using clean and greener energy.

All these efforts indicate Tata Power is betting big on renewable energy. However, being a part of the cash-rich Tata Group, the company funding these projects is not going to be a big task.

Going forward, its expansion plans will drive its revenue and profit in the medium term.

For more details, see the Tata Power company fact sheet and quarterly results.

#3 NTPC

Third on the list is NTPC.

This government-owned company is engaged in the business of the generation and sale of electricity.

It also ventured into coal mining, oil and gas exploration, energy trading, and project management and consultancy services through its subsidiaries.

Apart from this, the company has been actively investing in renewable energy projects in recent years and has 1,295.5 MW of renewable energy projects under implementation.

Since 2001, NTPC has declared 47 dividends.

The five-year average dividend payout ratio stands at 37.8%. The dividend yield over the past five years has averaged 4.4%.

The board has recommended a final dividend of Rs 3 per equity share for the financial year 2023. The final dividend is in addition to the interim dividend of Rs 4.25 per equity share paid in February 2023.

The dividend is subject to the approval of the shareholders at the Annual General Meeting (AGM).

The record date for the same will be announced post the board meeting.

NTPC's Dividend History (2018-22)

  Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Dividend per share (Adj.) * (Rs) 4.4 6.2 3.2 6.2 7.0
Dividend payout ratio (%) 40.2 42.9 26.2 39.8 40.0
Dividend Yield (%) 3.0 4.5 3.7 5.8 5.2
*Adjusted for bonus issues and stock splits
Source: Equitymaster

In the current financial year, the company has commissioned a renewable energy capacity of 502 MW.

Additionally, it has won a 3,265 RE capacity under competitive bidding and a hybrid project of 450 MW.

To facilitate the green hydrogen transition, the company was awarded the nation's first green hydrogen-based micro-grid project of 50 KW.

Going forward, the company has set a long-term target of a total installed power generation capacity of 130 GW by 2032, including 60 GW of renewable power.

This would make NTPC one of the largest renewable energy companies in India.

For more details, see the NTPC company fact sheet and quarterly results.

#4 GAIL

Fourth on the list is GAIL.

GAIL (India) is a state-owned oil and gas company in India. The company owns more than 11,500 km of natural gas pipelines and over 2,300 km of LPG pipelines with six LPG gas-processing units and a petrochemicals facility.

It is also a major player in the renewable energy space with a portfolio of solar, wind, and biomass projects.

The company has declared a total of 4 dividends since 2001.

The five-year average dividend payout ratio stands at 34.6%. The dividend yield over the past five years has averaged 4.7%.

For the financial year 2023, the company has paid an interim dividend of Rs 4 per share.

GAIL's Dividend History (2018-22)

  Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Dividend per share (Adj.) * (Rs) 3.1 2.8 4.4 3.4 6.7
Dividend payout ratio (%) 42.7 27.6 30.3 36.1 36.1
Dividend Yield (%) 2.8 2.3 8.4 3.7 6.4
*Adjusted for bonus issues and stock splits
Source: Equitymaster

GAIL's renewable energy projects have a total capacity of 130.26 MW, of which 118 MW are wind energy projects and 12.26 MW are solar energy projects. The company is also involved in the development of green hydrogen projects.

In December 2022, a tender for the installation of a 600 MW solar photovoltaic (PV) project at Khavda Ultra Mega Solar Park in Gujarat's Kutch area has been issued by GAIL India.

Further, the company has also signed an agreement with Abu Dhabi National Oil Company (ADNOC) to explore collaboration and investment opportunities in the energy and renewable energy sectors.

Going forward, GAIL plans to expand this business as it is still in its early stages.

For more details, see the GAIL company fact sheet and quarterly results.

#5 IOC

Last on the list is IOC.

Indian Oil Corporation is a Maharatna company controlled by the government of India (GOI).

It has business interests straddling the entire hydrocarbon value chain from refining, pipeline transportation and marketing of petroleum products to R&D, exploration and production, and marketing of natural gas and petrochemicals.

The company is also a significant player in the renewable energy space.

IOC's renewable energy projects have a total capacity of 239 MW, of which 167.6 MW are wind energy projects and 69.82 MW are solar photovoltaic (PV) projects.

Indian oil has remained a consistent dividend payer over the years. Since 2001, IOC has declared 36 dividends.

The five-year average dividend payout ratio stands at 5.07%. The dividend yield over the past five years has averaged 9.3%.

For the financial year 2023, the company has declared a final dividend of Rs 3.

The said dividend is subject to the approval of the shareholders at the Annual General Meeting (AGM).

The record date for the same will be announced post the board meeting.

IOC's Dividend History (2018-22)

  Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Dividend per share (Adj.) * (Rs) 14.4 6.2 2.8 8.0 8.4
Dividend payout ratio (%) 90.1 50.4 -213.2 51.9 46.1
Dividend Yield (%) 11.9 5.7 5.2 13.1 10.6
*Adjusted for bonus issues and stock splits
Source: Equitymaster

Indian Oil Corporation (IOC) is taking significant steps towards a green transition plan, targeting net-zero emissions from its operations by 2046. As part of this strategy, IOC will establish green hydrogen plants at all its refineries, starting with a 7,000 tonnes per annum facility at the Panipat oil refinery by 2025.

In addition, IOC is diversifying its business by focusing on petrochemicals and transforming petrol pumps into energy outlets that offer EV charging points and battery-swapping options.

These investments reflect IOC's commitment to sustainability and align with India's reducing carbon emissions goals.

For more details, see the IOC company fact sheet and quarterly results.

Conclusion

Investing in renewable energy dividend stocks offers compelling reasons for investors. With the growing global focus on sustainability, renewable energy companies are poised for substantial growth.

This was further supported by the recent announcement by the finance minister for the National Green Hydrogen Mission, which includes a substantial investment of Rs 197 bn to facilitate the transition from fossil fuels to green power in India.

The government is committed to reducing India's estimated total carbon emissions by one billion tonnes by the end of the decade, with the ultimate goal of achieving net-zero carbon emissions by 2070. Additionally, there is a targeted reduction in the carbon intensity of the country's economy by less than 45% by 2030.

Given these developments, the renewable energy sector is experiencing rapid expansion and is expected to continue flourishing in the foreseeable future.

By investing in renewable energy dividend stocks, investors can tap into this sustainable growth and potentially benefit from the increasing demand for renewable energy solutions.

That being said, the stock market is a tricky place. Like any investment, renewable energy stocks come with inherent risks. Factors such as regulatory changes, technological advancements, and economic conditions can impact the performance of renewable energy companies.

Investors should conduct thorough research and carefully assess financial health, track record, and growth potential of companies before making investment decisions.

If you want to dig deeper, use Equitymaster's stock screener to check high dividend yield stocks and the best dividend stocks to buy.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

Safe Stocks to Ride India's Lithium Megatrend

Lithium is the new oil. It is the key component of electric batteries.

There is a huge demand for electric batteries coming from the EV industry, large data centres, telecom companies, railways, power grid companies, and many other places.

So, in the coming years and decades, we could possibly see a sharp rally in the stocks of electric battery making companies.

If you're an investor, then you simply cannot ignore this opportunity.

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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...


FAQs

Which are the top dividend yield stocks in India right now?

As per Equitymaster's Stock Screener, these are the top dividend yield stocks in India right now.

These largecap companies are ranked as per their dividend yield. A higher yield is more attractive, while a lower yield can make a stock seem less competitive relative to its industry.

Of course, there are other parameters you should take into account as well before forming a hard opinion on the stock.

What is the dividend yield of a company and how is it calculated?

The dividend yield of a company is a financial ratio that measures the quantum of cash dividends paid out to shareholders relative to the market value per share.

It is calculated by dividing the annual dividend per share by the market price of the share.

Dividend Yield = 100% * (annual dividend per share/market price per share)

It is often expressed as a percentage of the market price of the share.

Here's an example...Suppose company X's stock price is Rs 300 and the company's dividend per share is Rs 10. Using the above formula, the dividend yield of a company is 3.3%.

This means that for every Rs 100 invested in the share, investors earn a dividend of Rs 3.3.

What kind of companies pay high dividends?

A company can do two things with the profits that it earns - It can either plough the profits back into the company for investing in capex, new products or distribution or pay out the amount as dividend and become a dividend stock.

As such, dividend payout depends a lot on the cash (after meeting its capital expenditure and working capital requirements) a company generates during a year.

Often companies do not need to reinvest into the business purely because they don't see the need for it.

A classic example would be of companies from the FMCG sector. The FMCG sector is a slow yet steady growing industry. But yet, companies choose to pay out huge dividends due to the sector's slow growing nature as capex requirements are on the lower side.

As against this commodity businesses like cement, steel, textile or even capital goods and telecom businesses need to constantly reinvest cash. This leaves very little on the table to pay to shareholders by way of dividends.

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