15 Highest Dividend Paying Stocks in India 2020

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Dividends are a great part of earnings to the investor. If invested well, an investor can earn pretty good return over his/her investment to have a desired financial freedom. And, it is also a metric to evaluate the company’s financial performance. The payout of dividend over the years on a consistent basis can tell us a lot about the companies earning capability. 

Stocks with a good dividend track record are considered as safe investments. A consistent dividend paying stock can provide consistent cash flow to the investors which, when reinvested can provide better returns over long term.

What is dividend?

Dividend is the distribution of companies earnings to the shareholders. As per section 2(35) of Companies Act 2013, Dividend is the profit of the company not retained in the business. But, distributed among the shareholders in proportion to the shares held by them. Dividend shall be paid to shareholders in uniform proportion as per their share holdings.

Dividends are payable for the financial year after the final accounts are signed and the amount of distributable profits is available post approval by the Board of directors of the Company (BOD). The BOD shall decide the rate at which dividend be payable to its shareholders. Dividends are a kind of gratuity (a form of tip) paid by the management of the company to its shareholders for their continuous support and trust on the company.

Two types of dividend.

  1. Final dividend – It is the final dividend amount declared by the board of the company payable to the shareholders post completion of the annual general meeting. Mostly payable on an annual basis. Final dividend is a great form of passive income streams. 

Example: Let’s take ITC limited, investment for reference.

  • Company name: ITC limited 
  • Share price (CMP): Rs. 200
  • Number of shares: 1,000
  • Total investment: Rs.2,00,000

If you own 1,000 shares of ITC limited at a price of Rs.200 per share. Your total investment would amount to Rs.2,00,000/- 

As per the recent dividend declaration by the ITC limited, you are eligible for a dividend income of Rs.10.15 per share amounting to a total dividend earnings of Rs.10,150. That’s over 5% dividend yield. 

  1. Interim dividend – It is the dividend paid by the company in the middle of a fiscal year. The board of the company, upon its favourable profit or comfortable cash position decides to provide the shareholders with interim dividend. This kind of dividend can be provided at any part of the year. But, remember that the interim dividend might not be as high as the final dividend. 

Let’s take the same example as above, (Hypothetical scenario)

If you own 1,000 shares of ITC limited at a price of Rs.200 per share. Your total investment would amount to Rs.2,00,000/- 

Suppose ITC Limited board approves with an interim dividend of Rs.3 per share. You are eligible for a dividend income of Rs.3 per share amounting to a total dividend earnings of Rs.3,000. That’s at 1.5% dividend yield. But, since it is an interim dividend. It is earnings apart from the final dividend an investor can expect. 

If that’s not appealing, think about this.

So, an investor can not only expect an income of Rs.10,150 as final dividend. He/she can also earn Rs.3,000 as in interim dividend. An earnings of Rs.13,150 (10,150+3,000) for your total investment of Rs.2,00,000 makes your return via dividend at the rate of 6.50%. Much more favourable than Fixed Deposit (FD A/c) in the banks. More favourable because, in stock market investment. The other form of wealth creation is capital appreciation.

Are Dividends Good? Capital Appreciation or Dividend Income.

Dividend quote by Rockefeller

Capital appreciation – It is the rise in price of share from the time you purchase to the time you sell. An investor buys a share of the company to make a big return over a period of time. This is known as capital appreciation wherein, the share price if favourable, rises in price and can be sold at higher price. It is the difference in the buying price and the selling price to arrive at profit.

Example: Let’s take ITC limited investment for reference.

  • Company name: ITC limited 
  • Share price (CMP): Rs. 100
  • Number of shares: 2,000
  • Total investment: Rs.2,00,000
  • Purchase year: 2010 (Mid)

If you own 2,000 shares of ITC limited at a price of Rs.100 per share. Your total investment would amount to Rs.2,00,000/- Over the years, you would have received various stock split, bonus shares and dividend income. Apart from such earnings, in the year 2020 you decide to sell all your shares at the current market price (CMP) at Rs.200 per share. You have straight away doubled your initial investment to take home a profit of Rs.2,00,000/- (Initial Investment Rs.2,00,000; Sale price of your investment at Rs.200 per share for 2,000 shares would amount to Rs.4,00,000 bringing in a profit of Rs.2,00,000).

That’s the power of long term investment. Remember that the earnings is excluding your dividend return over the 10 years span. The fruit of capital appreciation is seen mostly in the long term investments. 

As said by Mr.Warren Buffett – “Buy low, sell high. It’s pretty simple. The problem is knowing what’s low and what’s high”.

Dividend income – As explained above, it is the revenue income unlike capital income as in capital appreciation of stocks. The income received as a dividend is repetitive in nature as long as you hold on to the stocks and the management decides to not change its dividend policy. Because, a company’s board has no legal obligation to provide dividend to its shareholders.

The power of consistency in wealth creation can be seen in dividend investing. Re-investment of one’s dividend income into the company can provide with more number of shares, to give more dividend. It’s a loop, a repetitive process that’s simple yet extremely effective.

Why should you invest in dividend paying stocks?

  1. Passive income – Dividend investment results in a great form of passive income stream for investors. They are one of the safest forms of investment. Investing in quality business with consistent dividend payout track record provides with consistent dividend income and one time capital appreciation at the sale of shares.
  2. Predictable – A consistent dividend payout by the company provides a predictable cash flow for the investor to look for. A revenue that’s as predictable as any other form of income. Investors can expect his/her exact dividend income over the number of shares held.
  3. Safe and reliable – Company with consistent dividend distribution track record is more reliable than the company without dividend distribution. To payout dividend, the company’s management has to earn such an amount in revenue that provides a comfortable cash position. Hence, management tends to be more competitive to earn such cash flow, the same to be distributed to investors as dividend.
  4. Reinvestment – Over the years, a reinvestment of dividend has provided a better return to investors than the one without dividend reinvestment. Consistent reinvestment of dividend into a well established dividend based company can yield better return over time. 
  5. Strong financial – As explained above, To provide consistent dividend to its shareholders. The company has to have strong cash flow, and has to maintain consistency in earnings. Thus, any company that’s both consistent in providing dividends and is improving its dividend yield to its shareholder is worth investing.

Financial terms in dividend paying stocks?

Now, we know the importance of dividend investing and the need for it in one’s portfolio. Here’s a list of checklists that’s needed before starting your investment.

  • Company cash flow – Cash flow is the movement of money in and out of the company. Operational cash flow is the inflow of money into the company via provision of goods and services by the company. It is the main form of income the company generates. Hence, we provide it with high importance.

There have been cases where companies provide dividends to its shareholders even without any stable earnings. The companies sell their assets or take loans to provide dividend to stay afloat and retain its goodwill in the market. An investor can judge the company’s solvency by reading the company’s cash flow statement.

  • Earnings yield to dividend yield – As discussed earlier, the company should provide dividend to its shareholder only by their revenue, the one that goes into the company reserve. Earrings yield is the rate at which a company earns its revenue on a per share basis. Also known as Earnings per share (EPS). It is the revenue earned by the company divided on a per share basis. Dividend yield is the earnings an investor earns on a per share basis.
Also Read on FinMedium:  “Say: Do” Ratio- A Reliable Metric to Assess Management of Businesses

Let’s take the same example as above, (Hypothetical scenario)

  • Company name: ITC limited 
  • Share price (CMP): Rs. 200
  • Number of shares: 1,000
  • Total investment: Rs.2,00,000 
  • Outstanding shares – 10,00,000 (No. of shares of the company listed in stock market)

Company in the year 2019-20, makes an annual turnover of Rs.100 crore. And, after tax the distributable profit known as PAT at Rs.10 crore. With outstanding shares of 10,00,000 listed. The EPS of the company would be Rs.100 per share (10 crore after tax earnings / 10 lakh outstanding share). 

In such case, If the company decides to provide dividend to its shareholders at Rs. 20 per share. The Dividend yield would be at 10% (Rs.20 dividend amount / Rs.200 CMP * 100).

And the earnings yield to the company would be at  (Rs.100 EPS / Rs.200 CMP * 100). Also known as the P/E ratio (Price to earnings ratio) the reciprocal of earnings yield is expressed in ratio. The per share earnings of the company to the price paid per share.

  • Dividend payout policy – It is the management, the board of directors of the company to decide the rate of dividend if at all to provide. It is the integral strategy of the company. And moreover, the company is under no obligation to pay dividend to its shareholders. 

So, as an investor. You should know the company’s dividend policy. The payment consistency, the rate of payment and the mode of payment.

  • Financial leverage – As discussed earlier, there are cases where the company had decided to pay a dividend to its shareholders even though the company made no real earnings. In such cases, the management tends to provide dividend to its shareholders by liquidating its assets or taking up debt or sometimes both. In such cases, the company’s financials can throw out any mismanagement. And, the cash flow can explain the company’s earnings capability.
  • Peer comparison –  When we say peer comparison, it can be an earnings comparison to the same industry and peer company earnings. And, it can also be the dividend yield comparison to its rival company shares. And, the third way of comparison would be to compare our dividend earnings to other asset class earnings to determine the opportunity cost of capital earnings.

Now, that we now know the importance of dividend paying stocks and the checklist to be considered before investing in one. We also checked the way wealth creation via dividend paying stocks is better than other asset classes.

Tax implications: 

Before this financial year, tax on dividend was as Dividend distribution tax (DDT) wherein, the company and mutual fund providing the dividend had to pay tax on the amount and the individuals need not pay any excess tax over it. Unless the dividend income is above Rs. 10 lakh. 

As per the Finance Act, 2020. The tax on dividend as in TDS shall be deducted by the company and mutual funds incase of dividend income to the investors receivable at over Rs.5,000 at the rate of 10% (Currently, reduced to 7.5% of TDS as a covid relief measure).

Top dividend paying stocks in India - 2020

Best Dividend Stocks in India (Updated August 2020)

Sl.N Company Name Company code Last Price (CMP) In Rs. Earnings Per Share (EPS) In Rs. Price to Earnings (P/E) In ratio Dividend (Per share Income) In Rs. Dividend Yield (Per share) In % Dividend (Avg 5Yrs Yield) In %
1 Hindustan Petroleum HINDPETRO 207.80 26.34 7.92 9.75 4.59 8.91
2 Indian Oil Corp IOC 85.75 -2.62 4.25 7.77 12.91
3 Power Grid POWERGRID 177.85 20.28 8.65 10.00 4.73 1.64
4 Oil India OIL 94.75 35.18 2.67 10.60 11.32 15.92
5 Power Finance PFC 92.55 28.86 3.16 9.50 9.96 5.85
6 Hindustan Zinc HINDZINC 233.00 14.00 16.48 16.50 6.89 7.60
7 NTPC Ltd NTPC 92.95 11.02 8.02 3.15 3.61 3.97
8 ITC Ltd ITC 197.85 10.92 17.99 10.15 5.04 2.44
9 Infosys INFY 957.50 40.09 23.79 17.50 1.84 2.53
10 HCL Technologies HCLTECH 712.50 44.67 15.87 6.00 0.83 1.78
11 Tata Consultancy Services TCS 2,246.85 83.19 26.95 33.00 1.46 1.26
12 Tata Steel TATASTEEL 422.20 -22.69 10.00 2.42 1.84
13 Indiabulls Hsg IBULHSGFIN 206.10 51.52 3.98 21.00 14.57 14.63
14 National Mineral Dev Corp NMDC 94.75 11.68 7.97 5.29 8.64 5.38
15 National Hydropower Corp NHPC 20.70 2.87 7.20 1.50 9.39 6.00
  • CMP – Current Market Price. The price per share when we drafted this article.
  • EPS – Earnings Per Share. The per share earnings of the shareholder for his/her holdings.
  • P/E – Price to Earnings ratio, the well known ratio used to evaluate companies valuation.
  • Dividend Incomes – Income an Investor can expect from the stock holdings, on a per share basis.
  • Dividend Yield – Dividend earnings in percentage basis, the same is calculated on the CMP.
  • Average Dividend – The Five (V) years average dividend yield described in percentage basis.

Dividend Information of a Company: Where to find?

All the details regarding the dividend of stocks can be found on any of the major financial websites in India. Here are a few reliable financial websites to get more information:

Final Thoughts:

An investor has to diversify his/her investment into various asset classes such as Stocks, Bullion (Gold & Silver), Bonds and others. Likewise, while investing in Indian stocks. An investor has to invest in various sectors to build an all weather portfolio. One that can withstand the covid pandemic like a market crash.

As you can observe, most of the dividend paying stocks are the companies that are Public Sector Undertakings (PSU), The blue chip company and such other high cash generating companies for they attract investors via their dividend track record. Whilst, the same cannot be done by the penny stocks (those companies with less market capitalization) for they fail to generate sufficient cash flow. 

Although most of the above mentioned company dividend yield seems favourable. Do not consider investing in all of them. Dividend stocks have to be considered due diligently. The consistency of dividend yield has to be given primary importance. 

Happy learning! Any suggestions or queries, feel free to comment below. We’ll be happy to assist. In our upcoming articles, we write about bonus paying stocks, how to check company cash flow and much more. So, stick on!

Disclaimer: All the information on this website is published in good faith and for general information purpose only.

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Rakshith Pai
Rakshith is a CA aspirant with half a decade of investing experience. He manages a private fund management service, AUG Funds. Wherein, AU denotes Gold and AG denotes Silver, the two most precious metals on Earth.
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