Which are the Highest Dividend Paying Stocks in India?

A dividend is a payment made by a company to its shareholders out of its earnings or accumulated profits. Listed companies usually pay dividends in cash and are an additional source of income for shareholders. They also issue dividends as additional shares of stock or other forms of property. Dividends serve as a way for companies to reward shareholders for their investments. However, companies are not legally bound to pay dividends. All companies can choose to issue dividends at their own discretion. In this article, we will examine the top dividend-paying stocks in India.

Why Should You Invest in Dividend Paying Stocks?

Passive Income

Dividends can be an excellent source of passive income. Passive income refers to earnings that require minimal effort or ongoing involvement of the investor. Dividend payments fit this definition because once you invest in dividend-paying stocks, you can receive regular income without actively working for it.

Regular Cash Flow

Dividend payments are often made quarterly or annually. This regularity provides a predictable income stream. Additionally, since companies pay dividends in cash, there will be a regular cash flow.

Increased Total Return

Dividend income can contribute to the total return of an investment. Total return refers to an investment’s overall profit or loss over a specific period. It considers both capital appreciation and any other income from the investment, such as dividends. When you reinvest dividends in the company’s shares, it can supercharge the total return through compounding.

Cushioning Market Volatility

Dividend-paying stocks can act as a cushion during market downturns. Even if the stock price temporarily declines, investors still receive dividend payments, which can help offset potential losses. This dividend income can provide stability to your portfolio and reduce the impact of market volatility.

Indicator of Financial Health

Companies that consistently pay dividends often exhibit stability and predictability in their financial performance. These companies are typically well-established, generate steady profits, and have a history of sharing their earnings with shareholders. Dividend payments can reassure investors of the company's financial health and stability.

Factors to Consider Before Investing in Dividend-paying Companies

Not all companies that pay dividends are good. Before choosing a company to invest in, you should consider different factors. A few of them are listed below:

Dividend History

A company that has paid consistent dividends over the years tends to continue paying dividends in the future. Examine the company's dividend payment history. Look for companies with a history of paying dividends consistently over a significant period. Consider whether the dividends have been maintained or increased over time. A stable or growing dividend history indicates the company's commitment to rewarding shareholders.

Dividend Yield Ratio

The dividend yield ratio of a share is the ratio of the annual dividend per share to the share’s market price. It evaluates the dividend amount relative to the stock price. A higher dividend yield may indicate a potentially attractive income-generating opportunity. However, the dividend yield ratio is dynamic, as the value ratio changes with the stock price. It is essential to compare the yield with industry peers and assess its sustainability.

Dividend Payout Ratio

The dividend payout ratio represents the proportion of earnings paid out as dividends. A lower payout ratio indicates that the company retains a sizeable portion of its earnings for reinvestment or future growth, which can be positive for long-term stability. On the other hand, a high payout ratio may indicate that the company is distributing a significant portion of its profits, potentially limiting its ability to invest in growth opportunities or withstand economic downturns.

Payout Ratio = Dividends Per Share/Earnings Per Share × 100

Payout Ratio = Dividends per share/Free Cash Flow Per Share × 100

Company’s Financial Health

Look into the company's financial health by reviewing its financial statements, including revenue growth, profitability, debt levels, and cash flow. A company with robust financials and a healthy balance sheet holds a solid position to sustain and potentially increase dividend payments.

Growth Prospects

Consider the company's growth prospects and future earnings potential. While dividends provide income, assessing whether the company can grow its earnings over time is essential. Sustainable dividend payments often align with a company's ability to generate consistent profits and reinvest in its business for future growth.

Economic and Market Conditions

Evaluate the broader economic and market conditions. Some industries, such as utilities or consumer staples, tend to have more stable cash flows. They are better positioned to maintain dividend payments during economic downturns. Consider the impact of economic factors, interest rates, and market volatility on the company's ability to sustain its dividend payments.

Valuation

Assess the company's valuation relative to its peers and its historical valuation. A company with an attractive valuation may provide an opportunity for capital appreciation in addition to dividend income. However, be cautious of excessively high dividend yields that may signal 

underlying risks.

Best Highest Dividend Paying Stocks In India

Given below are a few of the best highest-dividend paying stocks in India:

No.	Name	Sector
1	Infosys	Information Technology
2	Hindustan Unilever	FMCG
3	ITC	FMCG
4	Oil & Natural Gas Corp	Energy
5	HDFC Bank	Financial

Infosys Ltd

Infosys Ltd is engaged in consulting, technology, outsourcing, and next-generation digital services. The IT company’s core services include application management services, proprietary application development services, independent validation solutions, product engineering & management, infrastructure management services, traditional enterprise application implementation, and support & integration services. Its products and platforms include Finacle, Panaya, Skava, and LEAP.

The company offers services to enterprises in the financial services & insurance, manufacturing, retail, consumer goods, logistics, energy, communication, telecom, and media sectors. Infosys has grown into the 2nd largest information technology company in India behind TCS.

Hindustan Unilever Ltd

Hindustan Unilever Ltd is a consumer staples company. It manufactures and sells food, home care, personal care, and refreshment products in India and internationally. The company operates through Home Care, Beauty & Personal Care, Foods & Refreshments, and other segments. 

The Home Care segment engages in detergent bars and powders, detergent liquids, scourers, water business, purifiers business, etc. The Beauty & Personal Care segment provides oral, skin, and hair care products; soaps, deodorants, talcum powder, color cosmetics, salon services, etc. The Foods & Refreshment segment sells fruit-based products, soups, tea, coffee, health food drinks, ice-creams, and frozen desserts. 

The company is also involved in job work, real estate, and discharge trust activities. Hindustan Unilever is a subsidiary of Unilever Plc.

ITC Ltd

ITC Ltd is a consumer staples company. The company operates through four segments: FMCG (fast-moving consumer goods), Hotels, Paperboards, Paper and Packaging, and Agri-Business. 

Cigarettes, branded packaged foods, education & stationery products, personal care products, safety matches, agarbattis, and apparel forms its FMCG business. The company operates a chain of over 100 hotels across India. Its Agri Business segment includes agri commodities such as soya, spices, coffee, and leaf tobacco. ITC owns and operates brands such as Aashirvaad, Bingo!, Candyman, Fiama, Vivel, Classmate, Superia, Engage, Mangaldeep, Aim, and Homelites.

ITC also offers information technology services and branded residences. 

Oil & Natural Gas Corporation Ltd

Oil and Natural Gas Corporation (ONGC) Ltd is the largest producer of crude oil and natural gas in India. The primary activities of the company include exploration, development, and production of crude oil, natural gas, and value-added products. ONGC has two business segments— Exploration and Production and Refining and Marketing. 

ONGC contributes nearly 71% to India’s total production of crude oil. The crude extracted by the company is used as raw material by downstream companies such as Indian Oil Corp. (IOCL), BPCL, and HPCL. Moreover, ONGC contributes ~63% to the total gas production in our country.

Mangalore Refinery and Petrochemicals Ltd, ONGC Videsh Ltd, and Petronet MHB Ltd are its subsidiaries.

HDFC Bank

HDFC Bank Ltd is the largest private sector bank in India. It offers a comprehensive range of banking and financial services, including retail banking, wholesale banking, and treasury operations. The company is also the market leader in the credit card business in India. As of 31 March 2023, the bank's distribution network was at 7,821 branches across 3,203 cities.

In conclusion, investing in dividend-paying stocks can create additional income, supercharging long-term wealth creation. While investing, it is crucial to look beyond the absolute dividend values and consider other factors such as payout ratios. This investing style is best suitable for people who need regular cash flow!

Disclaimer: The stocks mentioned in the article are solely for educational purposes. Please do your own research before investing.