Companies distribute a part of their profit to shareholders through dividends. The extent of dividend payout depends on factors such as the company’s growth stage, the availability of new projects to reinvest profit back into the business, and the shareholding pattern. Investors prefer investing in good dividend-yielding stocks as they are a source of passive income for shareholders. The additional income makes dividend-yielding stocks an attractive investment bet for Indian investors. This blog post will discuss some of the best dividend stocks in India.
What are dividend-paying stocks?
A company’s shareholders are its owners. This means unlike debtors, shareholders aren’t promised a fixed return. However, a company pays dividends to its shareholders from its profit. Apart from capital appreciation, dividends are the return shareholders get for their investment in the company.
The top dividend-paying stocks in India have a history of paying high dividends over the years. The academic theory of dividends underlines that a high dividend-paying company is an organization in the mature stage of its growth cycle and doesn’t have opportunities to reinvest capital back into the business. Therefore, as a general rule of thumb, high dividend-paying companies will be giants with stable share value.
However, in practice, this theory does not work that well. While many high dividend-paying stocks are blue-chip, established companies, several high dividend-paying stocks might be doling out a higher payout to cover up for financial irregularities and other associated problems.
Therefore, investors should analyze a company and its financials closely before investing in high-dividend stocks in India.
List of best dividend stocks in India
Here is a list of the top 10 best dividend stocks in India.
1. Indian Oil Corporation Ltd. (IOC)
Dividend Yield: 7.15%
Source: Screener.com as of July 13, 2024
Indian Oil is a Maharatna PSU with business interests spread across the entire hydrocarbon chain, ranging from refining, pipeline transportation, and marketing of petroleum products to R&D, exploration & production, and marketing of natural gas and petrochemicals. It is the largest refining company in India with 11 refineries.
IOC is a public sector unit (PSU) with the President of India being its largest shareholder. The company declares regular dividends as it strives to balance shareholders’ value maximization and company growth.
2. Vedanta
Dividend Yield: 6.58
Source: Screener.com as of July 13, 2024
Vedanta is a mineral and mining company engaged in the exploration, mining, and processing of minerals and oil & gas with a presence in India, South Africa, Namibia, Ireland, Liberia & UAE.
While Vedanta is one of India’s best high dividend-paying stocks, investors should consider another angle before investing. Vedanta currently has a lot of debt, but the company plans to go debt-free in 2-3 years. The rationale for the high dividend payout is the reliance of Vedanta’s parent company Vedanta Resources Limited on dividends from Vedanta Ltd.
3. Gujarat Narmada Valley Fertilizers & Chemicals Ltd (GNFC)
Dividend Yield: 4.37%
Source: Screener.com as of July 13, 2024
GNFC, a joint venture between the Government of Gujarat and Gujarat State Fertilizers & Chemicals Ltd (GSFC), operates in the industrial chemical and fertilizer manufacturing industry. The company has stable financials with a low debt-to-equity ratio and steady growth in operating profits over the years.
GNFC is into manufacturing chemical fertilizers, a basic need in an agricultural economy like India. This makes GNFC one of the best dividend-paying stocks in India with healthy financials and a positive business outlook.
4. Coal India
Dividend Yield: 4.89%
Source: Screener.com as of July 13, 2024
Coal India, a Maharatna PSU operating under the Ministry of Coal, is mainly engaged in the mining and production of coal and operating coal washeries. The firm’s largest customer is the mammoth power and the steel sector, with cement, fertilizers, and brick kilns contributing a small portion of its revenue.
Coal India has a monopoly in coal mining in India, accounting for 80% of the nation’s coal output. It is also the world’s largest coal-producing company.
5. ONGC
Dividend Yield: 3.66%
Source: Screener.com as of July 13, 2024
Oil and Natural Gas Corp., a Maharatna PSU, is the largest crude oil and natural gas company in India, contributing around 71% to India’s domestic production.
ONGC has a stable business outlook and sizable market share in the commodity sector.
6. HCL Technologies (HCLTECH)
Dividend Yield: 3.33%
Source: Screener.com as of July 13, 2024
HCL Tech, a leading IT global services provider, ranks among the top five Indian IT services companies by revenue. The company focuses on transformational outsourcing with an integrated portfolio of services including software-led IT solutions, remote infrastructure management, engineering and R&D service, and BPO.
HCL has a presence in 46 countries which it leverages to provide multi-service delivery in key industry verticals. HCL Tech has sound fundamentals and a high dividend yield. This makes it a good choice if you are planning to invest in dividend stocks in India.
7. Power Grid Corporation
Dividend Yield: 3.22%
Source: Screener.com as of July 13, 2024
Power Grid Corporation, a Maharatna PSU, is India’s largest electric power transmission company. The company moves large blocks of power from the central generating agencies and areas with surplus power to load centers within and across regions. Power Grid Corporation functions under the Ministry of Power.
The company, which has demonstrated strong operational efficiency, is of strategic importance to the government of India. It has recently ventured into the EV charging space by setting up charging stations for EVs in Delhi, Gurugram, Hyderabad, Ahmedabad, Bengaluru, Kochi, and Kozhikode.
8. ITC
Dividend Yield: 3%
Source: Screener.com as of July 13, 2024
ITC Ltd. is the largest maker and seller of cigarettes in India. Since its establishment in 1910, it has diversified its business significantly, expanding into verticals such as FMCG Cigarettes, FMCG Others, Hotels, Paperboards, Paper and Packaging, and Agri Business.
The company demerged its hotel business into a new entity, ITC Hotels Limited. ITC will continue to have a 40% shareholding in the new entity and the remaining 60% will be held by ITC’s existing shareholders in the proportion of their shareholding in ITC.
ITC can be a good long-term investment bet as the company has showcased stable growth with strong financials and has a track record of high dividend payments. This makes ITC one of the best dividend-paying stocks in India.
9. National Mineral Development Corporation (NMDC)
Dividend Yield: 2.68%
Source: Screener.com as of July 13, 2024
NMDC, a Navratna status PSU enterprise, is one of the most profitable among the Navratna companies. NMDC is primarily engaged in the exploration and production of iron ore along with diamond, the production and sale of sponge iron, and the generation and sale of wind power. This makes it a relatively diversified mining company compared to others in the mining and exploration segment.
The government’s infrastructure development program would benefit NMDC as it will boost the demand for iron and steel. This gives NMDC a stable outlook, making it one of the top 10 dividend-paying stocks in India.
10. Rural Electrification Corp. (REC)
Dividend Yield: 2.51%
Source: Screener.com as of July 13, 2024
REC, a PSU enterprise under the Ministry of Power, finances projects in the complete power sector value chain, from generation to distribution.
It is also the nodal agency for implementing various government development schemes for the country’s power sector such as Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and SAUBHAGYA.
The government backing enables REC to raise funds at competitive rates, providing financial flexibility to the company.
All data from Screener.in as of 12 July’24.
Performance overview of top dividend-paying stocks to buy in India
| Sr. No. | Name of the stock | Dividend yield as of 12 July’24 market price | Sector/Industry |
| 1 | IOCL | 7.15% | Refineries |
| 2 | Vedanta | 6.56% | Mining & Mineral products |
| 3 | GNFC | 4.37% | Chemicals |
| 4 | Coal India | 4.89% | Mining & Mineral products |
| 5 | ONGC | 3.66% | Oil and Natural Gas |
| 6 | HCL Tech | 3.33% | IT – Software |
| 7 | Power Grid Corp. | 3.23% | Power Generation & Distribution |
| 8 | ITC Ltd | 3.00% | Tobacco Products and FMCG |
| 9 | NMDC | 2.68% | Mining & Mineral products |
| 10 | REC | 2.51% | Finance |
Why invest in top dividend-paying stocks in India?
Here is why you should consider investing in some of the best dividend-paying stocks in India.
– Passive income stream
A dividend-paying stock will yield regular income to shareholders. This helps investors create a passive income stream that can supplement their primary income stream or create regular income for retired individuals.
– Hedge against inflation
One rupee today is better than hundreds receivable at a future date. Dividend vs. capital gains is also the same concept. The probable capital gains in the future are neither fixed nor a surety. Getting regular dividends helps investors hedge inflation risk by generating income in the present.
– Financial stability
Regular income means financial stability. Dividends generate regular passive income flow for investors, ensuring financial stability.
– Reinvesting benefit
Investors can reinvest dividends and potentially benefit from the dual advantage of regular income and potential capital appreciation. This makes dividend stocks a strategic choice for creating a balanced portfolio.
Factors to consider before investing in top dividend-paying stocks in India
– Dividend Yield:
The dividend yield or dividend–price ratio is the dividend per share divided by the price per share. A higher dividend yield indicates a good return on investment. Thus, investors looking to invest in high-dividend stocks should check the stock’s dividend yield over the absolute value of dividends.
– Financial Stability:
Investors should combine dividend yield with financial stability and look for stocks with strong fundamentals and high dividend yield.
– Risk Analysis:
Determine the risk associated with the best dividend-paying stocks in India, then select stocks that match your risk profile.
– Market Volatility:
High-dividend stocks belong to mature companies with a stable growth rate. This makes them less volatile and thus top dividend stocks are a good way to hedge portfolio volatility while creating a passive income stream.
Conclusion
Investing in the top 10 best dividend stocks in India can help retail investors create a passive income stream while setting their portfolio for probable capital appreciation in the long run. Additionally, dividend income can be reinvested. This can help investors achieve their investment goals and become financially independent in the long run.
