In the first three weeks of September, shares of Power Grid declined. However, the government-owned power transmission company’s shares have started recovering since 27 September 2022.
So, let’s take a look at why shares of Power Grid are witnessing such volatility and its business outlook.
Not buying a stake in REC
Over the past few days, reports have claimed that Power Grid was planning to buy a stake in power infrastructure financing company REC. This spooked the investors as the move would have impacted the Power Grid’s cash reserve and thereby its ability to pay high dividends.
However, the government has now reportedly clarified that Power Grid won’t be acquiring a stake in REC.
Robust dividend
So, investors are cheering this decision because the company’s ability to dole out high dividends won’t be hampered.
It’s important to note that Power Grid is a consistent-dividend paying company and its shares have commanded a high dividend yield over the last three years. If we take into consideration, the closing price of its shares on 26 September 2022, Power Grid’s dividend yield for FY20, FY21 and FY22 stood at 4.2%, 6.5% and 7.7%, respectively.
You have to divide the dividend by share price to get the dividend yield. So, the higher the dividend yield, the higher the returns on investment.
Financial performance visibility
Besides this, there seems to be more clarity over the company’s future financial performance. The company has said that it will invest ₹52,000 crore to expand its capacity. This will boost its electricity transmission network and revenue and thereby its ability to reward its shareholders through dividends.