Dividend payout is the icing on the cake. People love dividends more than price appreciation. Why? Because it is an extra income over and above the price appreciation. It is like getting an unexpected incentive on your investment. Today, I will discuss Highest Dividend Paying Stocks in India.
What is Dividend?
Before we move ahead, we must understand the concept of dividend. The dividend is the distribution of the profit by the company to its shareholders. Whenever a company earns a profit, it is able to distribute the same to its shareholders. It is not compulsory to distribute dividends by the company. But whenever the company distributes dividends, it is a good sign for the company that it has rewarded its shareholders.
A company’s dividend is decided by the board of directors and it needs shareholder’s approval. Dividend payout could be quarterly, half-yearly, or yearly. It depends on the company to choose the frequency of dividend distribution.
How is Dividend calculated?
There is a formula for calculating dividends. It is called the dividend payout ratio, wherein the annual paid dividend per share is divided by earnings per share. Below is the formula for calculating the dividend payout ratio.
Dividend payout ratio = Dividend paid / PAT (Net Profit)
The dividend payout ratio remains 0 if the company does not pay any dividends for the entire year. Same way if the company pays out the entire net profit as dividends, the ratio will be 0 for that scenario as well.
There is another formula I will just explain for you not to get confused with the dividend income. The term is called ‘Dividend yield’. It is expressed as the % of the current market price (CMP) of the stock. It will give you an idea about what % of return you have received against the current market value of the stock.
Dividend Yield = Dividend paid / current share price (CMP)
For example, if you have received a dividend of ₹ 10/share and the share price is currently at ₹ 100, then you can say that you have got 10% as dividend yield for that share.
Dividends are paid as per a single stock. It is always calculated against the single stock unit of the company.
Now as you have got a fair understanding of how the dividend is calculated, let’s go and check the highest dividend-paying stocks in India.
Highest Dividend Paying Stocks in India
Here is the list of the stocks that are paying the highest dividend year on year. For this analysis, I have taken stocks that have given dividends constantly for the last 5 years, and last year’s dividend payout ratio was higher than the previous year’s average.
Criteria for selecting highest dividend paying stocks
I always use screener. in for filtering stocks based on various parameters. So for this analysis, I have chosen the below criteria for selecting high dividend-paying stocks.
- The dividend payout for the stock must be < 100%
- Profit growth for the last 5 years must be > 10%
- The last 5 year’s dividends must be > 0%
- Last year’s dividend must be > average dividends for the last 5 years
- PAT must be > last years PAT
- The last year’s dividend must be > 35%
As you can see from the stock selection criteria above, while fetching the list, I have got around 70 stocks which are falling under the above criteria of best dividend stocks.
Now, as the list is quite long, so I will select the companies with the highest market cap among these stocks. Why? Because these are big companies distributing higher dividends year on year. Below is the list of the highest dividend-paying stocks in India.
| Company Name | Mkt. Cap(Cr.) | Divi. Payout Ratio | Divi. Yield | ROE |
|---|---|---|---|---|
| ITC | 252759.88 | 81.51% | 4.94% | 24.83 |
| Power Grid Corp. | 105233.43 | 47.30% | 4.97% | 17.25 |
| Bajaj Auto | 102344.33 | 66.63% | 3.39% | 23.18 |
| Britannia Ind. | 91841.89 | 60.01% | 3.80% | 32.70 |
| GAIL (India) | 58946.12 | 30.64% | 4.82% | 19.26 |
| Colgate-Palmoliv | 42423.90 | 93.28% | 2.44% | 53.70 |
| Petronet LNG | 33262.50 | 69.36% | 5.64% | 25.81 |
| Mphasis | 32512.79 | 55.10% | 2.01% | 21.37 |
| Bharat Electron | 29713.50 | 37.41% | 2.30% | 18.92 |
| Power Fin. Corp. | 27533.99 | 35.22% | 9.07% | 14.76 |
These stocks cannot become multi-bagger stocks but are good for receiving higher dividend payouts on a regular basis. These are the stocks that must be there in your portfolio. Basically, a company should have a dividend payout ratio of at least 50% and the dividend yield is between 3% to 6% on a YOY basis.
Why Should You have dividend paying stocks in your portfolio?
Every investor must have dividend-paying stocks in their portfolio. These are the stocks which can give you good value appreciation + higher dividend on regular intervals. Such dividend payout is usually higher than the bank’s fixed deposit returns. And you will also enjoy the price appreciation of the stock that you hold in your portfolio.
Benefits of having dividend paying stocks in portfolio
- Get a double profit, one is dividend payout and second is the price appreciation
- Steady income from dividends
- Dividend-paying stocks are usually weatherproof, that can withstand bear market
- These companies are having substantial cash reserves for rainy days
- They believe in giving back to their shareholders
- Good stocks for retirement planning
- Low-risk stocks for investment, suitable for conservative investors
Conclusion:
When a person thinks of creating wealth through the direct equity investment, he/she must think about the dividend yield of the stock. This should be one of the main criteria for selecting a portfolio stocks. Whatever dividend you will earn is over and above the price appreciation for that stock. I personally holding 3 out of above mentioned list of highest dividend paying stocks in India. How many do you hold?