NTPC, the country’s largest power producer, has been a consistent dividend payer. After the 4 per cent fall (year to date) in stock price, at Rs.136, the dividend yield for the stock works out to 2 per cent for 2014-15.
This is but the lowest dividend yield in recent years. During the five years until 2013-14, the dividend yield of the stock ranged between 2.8 per cent and 4.2 per cent, peaking in 2013-14. Also, at 34-43 per cent, the dividend payout during this period was at a comfortable level. Dividend payments as a proportion of earnings, however, fell to 20 per cent in 2014-15, when net profit declined 12 per cent. This was following a change in tariff norms by the CERC, the central power sector regulator.
Once the company’s earnings pick up, dividend payments too should rise. For the quarter ended September 2015, NTPC posted 7 per cent and 24 per cent growth in revenue and operating profit respectively, over the same quarter the previous year, thanks to higher power sales and better tariffs. Net profit too grew 40 per cent, thanks to tax refunds.
The long-term growth prospects of the company too look sound. NTPC still enjoys tariffs that allow a complete pass-through of costs plus an assured pre-tax return on equity of 15.5 per cent. It is well-placed on the coal front too. It has a secure fuel supply with 90 per cent of its coal requirement being met from Coal India and the rest from imports. Apart from that, NTPC has captive mines too.
NTPC is also expanding its power generation capacity and this should improve earnings despite the changed tariff regulations. From 44,398 MW as of March 2015, it plans to increase its installed capacity to 46,801 MW by the end of the current fiscal. That apart, given that NTPC is among the lowest-cost power producers in the country, higher demand from State distribution utilities, as their financial condition improves, too should help.