Dividend yields, although not guaranteed like bank FD payouts, appear more attractive in a falling interest rate environment. In the current monetary easing cycle, the Reserve Bank of India (RBI) has cut the repo rate by 100 basis points. Brokerages now expect the central bank to consider another 50 bps rate cut by December, supported by disinflationary trends from low food prices, GST rate reductions, and minimal input price pressures.
Coal dominates India’s energy landscape, with over 70% of production supplying more than 80% to the power sector. Domestic brokerages expect modest volume growth of 2–4% over FY26–27E, although this comes amid rising competition from captive and merchant mines, which produced 197 million tonnes in FY25, up 29% year-on-year.
“CIL is one of the highest dividend-paying PSU companies in India. Historically, its dividend yield has ranged between 6–10%, much higher than most large-cap peers,” Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, told ET Markets.
CIL maintains a strong market position as the largest coal producer in the world, catering to about 80% of India’s coal demand, Sheth added, highlighting the company’s defensive characteristics despite emerging challenges.
However, high yields do not necessarily guarantee profits, as there is always capital risk when chasing dividends. Coal India shares have lost 18% of their value over the past year but are up 43% over a two-year timeframe.Also Read | Coal India shares rise 2% after emerging as preferred bidder for REE block in Andhra PradeshStreet analysts continue to back the stock despite near-term headwinds. Motilal Oswal maintains a BUY rating with a target price of Rs 450 per share, valuing the stock at 4.5x FY27E EV/EBITDA—a premium to its current trading multiple of 4x, which aligns with the 10-year historical average.
Motilal Oswal has trimmed its FY26/27E revenue and EBITDA estimates by 2–6% and 5–9%, respectively, factoring in lower volumes and increased coal production from captive miners. The brokerage expects earnings to remain under pressure in FY26 due to muted power demand and subdued global coal prices, which may cap e-auction premiums.
Yet, the long-term outlook remains robust. Coal demand is projected to reach 1.3–1.5 billion tonnes by 2030, driven by a peak power demand of 363 GW by FY30 and over 40 GW of new coal-based plants coming online. Thermal coal imports have already dropped 10% year-on-year to 170 million tonnes in FY25, reflecting increased domestic output.
From a valuation standpoint, Coal India trades at attractive multiples. “The CIL stock usually trades at low P/E multiples (5–8x), making it attractive from a value perspective,” Sheth explained.
But investors shouldn’t expect fireworks. “For capital appreciation, it’s a value stock with stable returns, but not a high-growth compounder like tech, pharma, or FMCG,” he cautioned.
Ajit Mishra, SVP-Research at Religare Broking, emphasized the appeal for conservative investors: “Dividend investing suits investors who value stability and steady cash flows while still participating in equities. A healthy dividend yield provides predictable income, much like a fixed deposit, but with the added potential for capital appreciation.”
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The company faces near-term headwinds from high inventories at both mine and power plant levels, erratic rainfall affecting operations, and approval delays. Rising competition from captive and merchant mining during April-July 2025 adds to volume pressures.
Yet, risks lurk beneath the surface beyond operational challenges. Regulatory dependence, pricing pressures, environmental norms, and government interventions could dent earnings. The long-term energy transition toward renewables poses the biggest threat, potentially capping demand growth over the next 10-20 years.
“Very high yields often suggest that a company has fewer reinvestment opportunities, limiting long-term growth, and in some cases may raise questions about the sustainability of payouts,” Mishra warned.
Despite near-term pressures, Motilal Oswal expects the higher share of e-auction volumes, with a modest premium of around 70% over FY26-27E, to support overall net sales realization and margins.
For now, Coal India offers a compelling proposition for income-focused investors willing to accept moderate capital appreciation in exchange for steady dividends that outpace traditional fixed deposits. The brokerage’s Rs 450 target price suggests potential upside even as operational challenges persist.
“If you want a steady income, treat CIL as a dividend play. In case you want moderate appreciation in addition to regular dividend payouts, it’s a defensive, low-risk investment stock,” Sheth concluded.
The question for investors: Is a 7% dividend yield worth the regulatory and transition risks in a commodity-dependent business facing near-term volume pressures? With rate cuts on the horizon and long-term demand growth intact, the answer may increasingly be yes – at least for the income-hungry.
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