HUDCO's 3.6% yield: safe payout or leverage trap?

Housing and Urban Development Corporation Limited (NSE: HUDCO) paid ₹6.05 per share for FY26. At around ₹169, that is a 3.6% yield on a stock down 20% in a year. What happened Q1 FY27 net profit rose 35% to ₹851 crore. The loan book grew 28.8% to ₹1,73,123 crore. Sanctions jumped 91% to ₹65,485 crore and disbursements rose 28% to ₹16,377 crore. Gross NPA fell to 0.96% from 1.34%. The cost of borrowing eased to 6.95%. A first interim dividend of ₹1.25 was declared for FY27. Why it matters FY26 profit of ₹4,034 crore looks huge, up 49%. But ₹1,460 crore of it came from a one-time deferred tax reversal. Strip that out and real profit was closer to ₹2,570 crore. In Q4 FY26, pre-tax profit fell 39% and the company booked a ₹466 crore fair value loss. My view The payout is safe. Dividends of ₹1,211 crore are 30% of reported profit, and still under half of the adjusted number. A 3.6% yield at 8 times earnings is not a stretched promise. The catch sits elsewhere. A lender growing its book 29% a year needs capital to match. HUDCO earns about 20% on equity but keeps only part of it. So the debt to equity ratio has climbed past 6 times. Either growth slows, or leverage rises, or the payout gets trimmed later to fund the balance sheet. For now the numbers support the dividend. Just do not expect both 29% loan growth and a rising payout for long. What I am watching Q2 FY27 results, due late October. The second interim dividend, the debt to equity ratio and any fair value losses on the book. On the chart, ₹159 is the 52-week low and support. My stance: Buy for yield near ₹165. This is an income holding, not a growth bet at this price. Disclosure: I do not hold a position in Housing and Urban Development Corporation Limited at the time of writing. This is not investment advice.