The power sector is not only driven by internal factors but also by global trends. It is one of the sectors that acts as the backbone for other manufacturing sectors. Additionally, as per the National Infrastructure Pipeline 2019-25, in terms of capital expenditure, 24% is for the energy sector. This amounts to ₹111 lakh crore.
However, the question is whether this sector is right for those looking for dividends or not. Well, read this to learn the reasons.
Reasons Why Power Sector Is A Good Investment Option
The power sector is a prime investment opportunity, and several key factors contribute to its growing appeal. The main reasons that make the power sector an investment option are as follows:
1. Growing Energy Demand
India’s power sector will likely grow strongly in the fiscal year 2025, with demand expected to rise by around 6.0%. As more people inhabit cities, the requirement for electricity increases. This urban expansion boosts the need for reliable energy.
Additionally, the rise of technology—such as electric vehicles and smart devices—further increases energy consumption. This trend is expected to persist and will make the power sector a good investment option.
2. Transition to Renewable Energy
The Ministry of New and Renewable Energy plans to reach 500 GW of electricity from non-fossil sources by 2030, based on the Prime Minister’s announcement at COP26. This means that the energy sector is going through a significant change, with a marked shift from fossil fuels to renewable energy sources.
This shift is now a necessity. Technological advancements have also made these sources more viable and cost-effective.
3. Technological Advancements
Innovations are improving energy generation, storage, and distribution. For example, advanced metering infrastructure (AMI) and energy management systems allow for better monitoring and control of energy consumption.
Moreover, developing artificial intelligence and machine learning in predictive maintenance helps power companies identify issues. These advancements make power generation more efficient and reliable. Investors can tap into such power companies that are leading these changes.
4. Government Support and Regulations
Many governments support the power sector through policies and incentives. They recognize the importance of energy for economic growth. Subsidies and tax breaks encourage investment in new projects.
Also, clean energy initiatives gain financial backing. This creates a favorable environment for investors. Regulations often favor companies that focus on sustainability, which increases profits.
5. Long-Term Stability and Growth
Power stocks have generated over 220% of returns in the last year, and this trend is here to continue. This is due to consistent demand that offers a solid foundation for investment. While market fluctuations can occur, the fundamental need for power remains.
Utilities and energy companies often have stable cash flows. This stability makes them attractive options for investors looking for reliable returns.
Dividend Paying Power Companies
While many power companies in India, a few stand out for their high dividend payouts. A few of them that you can invest in are:
- Coal India Ltd distributed a ₹25.5 dividend per share. This generated a 5% yield in the past 12 months.
- Bharat Petroleum Corporation Ltd declared a ₹31.5 dividend per share, generating a 9% yield in the past 12 months.
- Power Grid Corporation of India Ltd paid an ₹11.25 dividend per share, a 3% yield in the past 12 months. The Power Grid share price experienced a 4.5% rise in September this year, leading to a new record.
Conclusion
The power sector has shown resilience and growth potential. With increasing demand for energy and a shift towards renewable sources, companies in this sector are poised for long-term stability. For investors looking for stable returns by tracking Nifty share price, it is important to keep an eye on the power sector, too. Analyze properly and invest in the power sector for long-term and stable returns.
