The war-like situation recently has triggered a strong rally in defence stocks. Comments on the success of indigenous air defence systems like the Akash system also supported this upward momentum.
More importantly, this has brought India’s ‘Make in India’ defence products into the global spotlight. Countries are lining up to buy India’s BrahMos missile system.
This development coincides with the government’s target of reaching Rs 500 billion (bn) in defence exports by FY29, up from Rs 236 bn in FY25.
As a result, investors anticipate a renewed focus on defence spending in the coming years.
However, this raises a critical question: Where will the funds come from?
Will the government ask public-sector undertakings (PSUs) Stocks to pay higher dividends? If so, which companies are well-positioned to deliver?
We have identified five PSU stocks that could be tapped for higher dividends.
Let’s take a look…
#1 Indian Oil Corporation
First on the list is Indian Oil Corporation.
Indian Oil (IOC) is India’s largest oil marketing company (OMC) and third-largest oil and gas company. It operates 11 of India’s 23 refineries, with a refining capacity of 80.7 million tonnes per annum (MTPA).
The company has a rich legacy of paying consistent dividends and increasing them. It has declared 39 dividends since 2001.
The company has paid a total dividend of Rs 24.4 per share in the last three years. This includes a dividend of Rs 13 per share in FY24.
This translates into a dividend yield of about 10% at the current market price of Rs 143.
IOC’s Dividend History (2020-24)
| Particulars | FY20 | FY21 | FY22 | FY23 | FY24 |
| Dividend Per Share (Adj.) (Rs) | 2.8 | 8.0 | 8.4 | 3.0 | 13 |
| Dividend Yield (%) | 5.2 | 13.1 | 10.6 | 3.8 | 7.2 |
Source: Equitymaster
Going forward, the company has an aggressive expansion plan. It plans to invest Rs 330 bn for FY26 and increase refining capacity at three refineries: Panipat (Haryana), Gujarat, and Barauni (Bihar).
Over the decade, it aims to invest over Rs 2 tn to expand refining capacity, petrochemical integration, associated infrastructure, and renewable energy assets.
With cash and cash equivalents of Rs 33 bn, and strong profitability, IOC should support sustained dividend payouts in the coming years.
#2 Coal India
Second on the list is Coal India.
Coal India, the world’s largest coal producer, meets 80% of India’s coal demand. It operates 84 mining areas in 8 states through 7 wholly owned subsidiaries and a mine planning and consultancy company.
It has consistently paid dividends since its listing in 2010. The company has paid an average dividend of Rs 19 per share in the last five years, distributing 54.3% of its net income.
In FY25, Coal India has paid a dividend of Rs 26.5, translating into a dividend yield of 6.6%. This includes a dividend of Rs 5.15 per share, declared in Q4FY25.
Coal India’s Dividend History (2020-24)
| Particulars | Mar-20 | Mar-21 | Mar-22 | Mar-23 | Mar-24 |
| Dividend per share (Adj.) (Rs) | 12.00 | 16.00 | 17.00 | 24.25 | 25.50 |
| Dividend yield (%) | 8.6 | 12.3 | 9.3 | 11.4 | 5.9 |
Source: Equitymaster
Looking ahead, since coal contributes about 75% to India’s power generation and power demand is expected to increase in the future, CIL’s performance is also likely to remain strong.
In addition, the company is expanding into the renewable energy sector, as coal demand is expected to peak around 2030. It also invests in coking coal washeries and coal gasification to fuel growth.
With cash and equivalents of Rs 111.6 bn Coal India will likely continue paying dividends.
#3 Oil and Natural Gas Corporation
Third on the list is Oil and Natural Gas Corporation.
ONGC is India’s largest crude oil and natural gas company. It contributes around 71% of Indian domestic production and about half of natural gas.
ONGC has a rich history of consistent dividend payments. Over the last five years, it has paid an average dividend of Rs 8 per share.
In the first nine months of FY25, it paid a total dividend of Rs 11 per share, which translates to a dividend yield of 4.5% at the CMP of Rs 246.
ONGC’s Dividend History (2020-24)
| Particulars | Mar-20 | Mar-21 | Mar-22 | Mar-23 | Mar-24 |
| Dividend per share (Adj.) (Rs) | 5.00 | 3.60 | 10.50 | 11.25 | 12.25 |
| Dividend yield (%) | 7.3 | 3.5 | 6.4 | 7.5 | 4.6 |
Source: Equitymaster
Looking ahead, the company has set a capex target of Rs 369 bn for FY26.
In addition, it has also laid out a roadmap to diversify into the green portfolio. It aims to have a 10 gigawatt renewable energy capacity by 2030, of which 60-70% will be solar, followed by 30-40% of wind energy.
It also plans to build 25 compressed biogas plants, 2 GW pumped hydro plants, a green ammonia plant of 1 MTPA capacity, and a 180 kilo tonnes green hydrogen plant.
#4 Bharat Petroleum Corporation
Fourth on the list is Bharat Petroleum Corporation.
BPCL refines crude oil and markets petroleum products. The company is one of the three leading public oil market companies, with a market share of about 25.4% as of FY24.
It also has the third-largest refining capacity, 35.3 MMTPA, which comprises about 14% of India’s total refining capacity.
The company has been paying dividends continuously since 2001 and has declared 41 dividends. In the last five years, it has paid an average dividend of Rs 29 per share, with an average dividend yield of 6.9%.
It paid a dividend of Rs 10 in FY25, including a dividend of Rs 5 declared in Q4FY25. This translates to a dividend yield of about 3%.
BPCL’s Dividend History (2020-24)
| Particulars | Mar-20 | Mar-21 | Mar-22 | Mar-23 | Mar-24 |
| Dividend per share (Adj.) (Rs) | 7.5 | 38.1 | 7.9 | 1.9 | 15.8 |
| Dividend yield (%) | 5.2 | 18.5 | 4.5 | 1.2 | 5.2 |
Source: Equitymaster
Going forward, the company plans to invest Rs 1.7 tn over the next five years.
The proposed investment under Project Aspire aims to expand BPCL’s core business into emerging businesses like green energy and petrochemicals. BPCL aims to achieve 10 GW of renewable energy capacity by 2035.
The company’s profitability is expected to rise in FY26 due to increasing gross refining margins, as crude oil prices have fallen significantly, but retail prices remain fixed.
This can support a higher dividend payout in FY26.
#5 Power Finance Corporation
Last on the list is Power Finance Corporation.
It’s India’s largest government-owned non-banking financial company (NBFC), with the highly coveted Maharatna status. It is also the most profitable company in the NBFC sector.
The company provides financing to companies operating in the power sector, specifically projects in power generation, transmission, distribution, and renewable energy.
Over the last five years, it has distributed 25% of its net income, with an average dividend yield of 8.4% and an average dividend of Rs 11 per share.
The company paid a dividend of Rs 13.5 per share in FY24. And in 9MFY25, it has already paid Rs 13.75 as a dividend, translating to a yield of 3.4%.
PFC’s Dividend History (2020-24)
| Particulars | Mar-20 | Mar-21 | Mar-22 | Mar-23 | Mar-24 |
| Dividend per share (Adj.) (Rs) | 7.60 | 8.00 | 9.60 | 10.60 | 13.50 |
| Dividend yield (%) | 10.3 | 8.8 | 10.7 | 8.7 | 3.5 |
Source: Equitymaster
Going ahead, the power sector will need around Rs 42 tn in investments over the next few decades, with most of it—about 85%—going into power generation.
As a key lender in the space, PFC is well placed to benefit from this rising demand.
Conclusion
According to the Department of Investment and Public Assets, the Government of India’s dividend receipts from PSUs rose 16% over the previous year to a record Rs 740.2 bn in FY25.
It’s highly probable that PSUs will not only pay a dividend this year but also raise it. As such, the government can nudge them to raise the dividend payout this fiscal year to meet the defence capex.
These stocks can provide investors an opportunity to generate passive income.
However, dividends always depend on the company’s profitability and thus may vary. This makes it important to assess the company’s fundamentals and corporate governance in depth before investing.
Happy Investing!
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