Most beginner investors easily get attracted to dividend-paying stocks because the motto behind them is to get a stable return every year that beats FD returns.
A fixed deposit usually gives you a return of around 7% whereas some stocks like REC Ltd give you a dividend yield (annual return in the form of dividend) of 15%. This means if you have invested Rs. 1,00,000 in these stocks you could earn around Rs. 15,000 whereas you’ll earn an interest of around Rs. 7,000 annually in a fixed deposit.
However, you must take care of some important factors before investing your hard-earned money in dividend stocks so that you don’t end up losing money. I’ll discuss that in the later part of this article.
Let’s understand how much dividend income you have earned in 12 months if you have invested Rs. 1,00,000 on 1st January 2022.
For example, Coal India Ltd shares were trading for Rs. 155.30 on 3rd January 2022 (because the 1st and 2nd January was weekend). You could have purchased 1,00,000 / 155 = 645 shares.
Coal India paid Rs. 23 dividends per share in the last year from January to 31 December 2022. Let’s calculate how much dividend amount you received in the last year.
Total dividends received = No. of shares x Dividend amount = 645 x 23 = 14,835.
Your dividend return = (14,835 / 1,00,000) x100 = 14.83% just by holding Coal India stock for a year.
Disclaimer: Stocks discussed in this article are not recommendations. These stock mentions are just for educational purposes and use your due diligence before investing in any stock.
Let’s understand how to select high-dividend stocks without any fluff.
Highest Dividend Paying Stocks
| Stock name | Industry | Share Price on 01-01- 2022 (in Rs.) | Dividend Paid between 1-1-22 to 31-12-22 (in Rs.) | Dividend Return (1-1-22 to 31-12-22) (in %ge) |
| REC | Finance | 101.47 | 15.8 | 15.57 |
| Coal India | Mining | 155.3 | 23 | 14.83 |
| Banco | Auto Ancillary | 176.9 | 20 | 11.31 |
| Goodyear | Tyres | 979.3 | 100 | 10.21 |
| Power Fin Corp | Finance | 122.8 | 12.5 | 10.18 |
| HUDCO | Finance- Housing | 39.75 | 3.5 | 8.81 |
| Sanofi | Pharmaceuticals | 7778.85 | 683 | 8.78 |
| IOCL | Refineries | 75.3 | 6.4 | 8.50 |
| ONGC | Oil Exploration | 167.95 | 11.75 | 7.00 |
| Power Grid | Power Generation and Distribution | 205 | 12.75 | 6.22 |
Note:
- Banco and Goodyear are the two small-cap stocks with a low market cap of below 5,000 Cr.
- Power Grid has less than a 7% dividend return but being a government company with solid fundamentals I added it to the list.
#1. Rural Electrification Corporation Ltd (REC Ltd)
| Market cap | Rs. 30,532.23 Cr. |
| P/E Ratio | 2.95 |
| EPS | Rs. 39.27 |
| Dividend Return (1-year) | 15.57% |
REC is a government-owned finance company that offers loans to new power generating stations, power distribution, and the improvement of existing transmission systems.
REC is the first Indian public sector company that raised money from the global markets through Green Bonds listed on London Stock Exchange in 2017.
REC has declared its annual net profit for the year 2021-22 is Rs. 10,045 Cr.
The company has reported its Gross Non-Performing Assets (GNPA) percentage has been reduced to 4.45% on March 31, 2022, from 4.84% as on March 31, 2021.
GNPA is the sum of all the loans distributed by the financial institution that has got defaulted. A GNPA of up to 3% is considered manageable by banks or financial institutions. REC has a slightly high GNPA but since it is a government undertaking, it can be a good investment from a dividend return point of view.
#2. Coal India
| Market cap | Rs. 1,29,910.31 Cr. |
| P/E Ratio | 8.4 |
| EPS | Rs. 25.08 |
| Dividend Return (1-year) | 14.81% |
Coal India Ltd is again a government-owned PSU that primarily operates in the mining and production of Coal in India. It contributes to around 80% of the country’s entire coal production. The mining company also operates Coal washeries.
Coal India majorly serves in the power, steel, cement, and fertilizers industries.
Coal India reported a 70% rise in the net profit at Rs. 7,700 Cr. for the Dec-2022 quarter as compared to Rs. 4,500 Cr. in the Dec-2021 quarter.
The only concern with Coal India is the contingent liabilities. Coal India had contingent liabilities of Rs. 57,000 Cr. in 2020-21 in the form of penalties slapped by Indian states on its different subsidiaries because of the excessive production than limits set by environmental authorities which could be a matter of concern.
Contingent liabilities are the liabilities that may occur in the future. It could be a pending court case where the outcome is uncertain.
You can also read our article on the top 10 FMCG stocks in India if you want to explore the consumable goods sector.
#3. Banco Products
| Market cap | Rs. 1,695.71 Cr. |
| P/E Ratio | 7.72 |
| EPS | Rs. 30.72 |
| Dividend Return (1-year) | 11.31% |
Banco Products Ltd manufactures engine cooling modules such as Radiators, Charged Air Coolers, Fuel Coolers, and Oil Coolers in both the Indian and international markets.
Banco supplies more than 65% of its products to big companies like Ashoka Leyland, Godrej, Mahindra, Eicher, and even Indian Railways.
Banco Products is focused to expand its business in USA and Europe. It has already taken over Nederlandse Radiateuren Fabriek B.V(Netherlands) which supplies heat transfer products like radiators, and cooling systems, and contributed 26% of Banco’s annual revenue in FY22.
Banco stocks have given a decent CAGR of 44% in the last one year.
#4. Goodyear Tyres India
| Market cap | Rs. 2,404 Cr. |
| P/E Ratio | 23.64 |
| EPS | Rs. 44.08 |
| Dividend Return (1-year) | 10.21% |
Goodyear is a leading tyre manufacturer in India’s farm tyre market. Goodyear also supplies its farm tyre to all major tractor companies such as Escorts, and Mahindra Tractors.
The stock has shown a CAGR of 13.82% in the last 1 year but recorded a decline in profit of Rs. 27.10 Cr. in Sep 2022 which is 28% lower than the previous quarter’s profit of Rs. 37.74 Cr because of high cost and lower margins but rubber prices has been lower by 20-25% now which can improve the tyre manufacturer’s profit margins in upcoming quarters.
Another factor to consider is that the Indian automobile market is likely to grow at a CAGR of approx. 11% from 2020 to 2027 reaching 6,920,900 units by 2027, the tyre industry is expected to grow in parallel. The tractor sales have also increased by 9.4% in the FY 2022, as compared to the previous year and that is also a positive sign for a long-term bet on the tyre stock.
#5. Power Finance Corporation Ltd.
| Market cap | Rs. 38,545 Cr. |
| P/E Ratio | 3.59 |
| EPS | Rs. 40.61 |
| Dividend Return (1-year) | 10.18% |
Power Finance Corporation Ltd. (PFCL) is another publicly listed finance company with a 57% government stake in the company.
PFCL has distributed loans worth Rs. 3,71,700 Cr. till Jul-Sep Quarter in 2022. The loan assets distribution is as below –
- Conventional Generation – 49%
- Transmission & Distribution – 40%
- Renewable Energy and others – 11%
The Non-Performance Assets’ (NPA) percentage of the lending company has been reduced to 1.92% in FY 2022 as compared to FY 2021 which was around 2.10%.
Another plus point of PFCL stock is that it is currently trading at 0.50 times its book value making it a good bargain at this price point.
You can also go through our list of best electric vehicle stocks in India, which are my favourites and you can too explore them.
#6. Housing & Urban Development Corporation Ltd (HUDCO)
| Market cap | Rs. 8,888 Cr. |
| P/E Ratio | 4.91 |
| EPS | Rs. 9.04 |
| Dividend Return (1-year) | 8.81% |
Housing & Urban Development Corporation Ltd (HUDCO) is another stock in the list trading at 0.45x lower than its book value.
HUDCO is one of the major lending companies in urban infrastructure and housing projects. The GoI holds ~81% stake in the company and it’s strategically very important for the objective of housing for all.
The company’s profit after tax has increased by 8.5% from March 2021 which was Rs. 1,578 Cr. to Rs. 1,716 Cr. in March 2022.
#7. Sanofi Pharmaceuticals India
| Market cap | Rs. 12,324 Cr. |
| P/E Ratio | 21.24 |
| EPS | Rs. 251.88 |
| Dividend Return (1-year) | 8.78% |
Remember Combiflam, a popular painkiller, is a product of Sanofi India. Combiflam along with Allegra and Lantus is among the top 100 pharmaceutical brands in India.
Lantus is the no. 2 most popular brand in the Diabetes treatment segment.
Sanofi is also active in cardiology, anti-infectives, central nervous system, allergy and supplements categories.
Sanofi also exports pharmaceutical products to 50 countries such as Germany, the United Kingdom, the Czech Republic, Russia and Australia.
Sanofi India has shown a good profit growth of 35.38% for the past 3 years.
Sanofi is also the highest dividend-paying stock on the list with Rs. 683 dividends per share paid in the year 2022, however, the overall return from dividends in 1 year is around 8.78% which is still better than a fixed deposit.
I have also made a list of the most expensive shares in India that you can read to know some interesting facts about some of the top stocks in the Indian share market.
#8. Indian Oil Corp. Ltd. (IOC)
| Market cap | Rs. 1,11,700 Cr. |
| P/E Ratio | 26.56 |
| EPS | Rs. 2.98 |
| Dividend Return (1-year) | 8.50% |
Indian Oil Corporation Ltd is one of the most popular dividend-paying stocks in India.
IOC is a Government of India-controlled Maharatna Company which is the industry leader in the Oil refining & petroleum marketing sector.
IOC operates thoroughly in the petroleum sector starting from Refining, R&D, Pipeline transportation and marketing of products. IOC possesses 32% of the total refining capacity of India which is 80.60 MMTPA (Million Metric Tonne Per Annum).
In FY 2022, IOC’s sales growth has been increased to 55.46% and the revenues grew by 65% to around Rs. 6,02,000 Cr. thanks to the rise in demand.
#9. Oil & Natural Gas Corporation Ltd (ONGC)
| Market cap | Rs. 1,91,976 Cr. |
| P/E Ratio | 4.00 |
| EPS | Rs. 38.10 |
| Dividend Return (1-year) | 7.00% |
ONGC was a Govt. of India’s initiative for oil exploration incorporated in 1956 that contributes around 71% to Indian domestic oil and natural gas production.
ONGC is one of the most profitable government companies in India.
ONGC’s subsidiary ONGC Videsh is operational in international exploration & production operations in 37 oil & gas projects abroad. It has a presence in 17 countries including Azerbaijan, Bangladesh, Brazil, Iran and many more.
ONGC has shown a 5-year profit growth of 14.62% despite the losses during the COVID period in 2020-21.
Currently, ONGC stock is trading at 0.67 times its book value making it a good buy at the moment.
#10. Power Grid Corporation Of India Ltd
| Market cap | Rs. 1,49,833 Cr. |
| P/E Ratio | 9.49 |
| EPS | Rs. 22.64 |
| Dividend Return (1-year) | 6.22% |
Power Grid Corporation Stock has given a lower return of 6.22% but it’s a govt. owned company with good fundamentals that’s why I have considered it in the list.
Power Grid Corporation plays an important role in the growth of India’s power sector by owning 85% of the interstate transmission network and 45% of electricity produced in India.
The state-owned company has also been established in the Consultancy sector in domestic as well as international presence in 20+ countries.
Power Grid is also installing EV charging stations throughout the country and currently has more than 50 EV charging stations operating in India. With a boom in the EV segment and Govt.’s serious initiative to promote electric vehicles can be fruitful for Power Grid Corporation in the future.
How to Select Highest Dividend Paying Stocks
You can use the Screener or Finology Ticker platform to shortlist your stocks. The best part of both platforms allows you to put specific conditions in the form of queries to shortlist the stocks. I use both Finology Ticker and Screener but prefer Ticker as they have more data sorted and accessible as compared to the screener.
Let me show you how you can shortlist stocks using the finology ticker.
Step – 1: Go to the Ticker.Finology.in and create a new screen
Step – 2: Run the query mentioned below
The above query will give us a list of stocks that have been given more than a 7% Dividend yield.
If you notice carefully, I haven’t picked all the stocks from the above list because of the reason that I have analyzed some other crucial factors as well.
For example, I haven’t picked Vedanta shares which are at the top of the above list because While analyzing Vedanta stock, I noticed that have almost 100% shares pledging which is a red signal.
Similarly, Vedanta’s subsidiary Hindustan Zinc also has 87% share pledging which again I avoided adding to the list for the obvious reason.
Share pledging is a process in which a company takes loans from banks or Financial institutions against their shares. It is similar to pledging the registry of your house when you go for a home loan from your bank.
Now, if a company has pledged all the shares against a loan, that means you are investing in a business that has taken a huge debt and it could be risky in the long run if the company is unable to repay the loan, the banks have the right to sell the stocks to clear their lending amount.
Whenever big institutions sell stocks that create panic in the market and may lead to a stock crash and erode your investments. So be careful with the amount of debt or share pledging of a company while shortlisting any stock.
Wrap Up
Remember, a high dividend return is simply one of the variables to consider when investing in shares. If a struggling company is paying significant amounts of dividends, that can be an attempt to attract investors.
Also, look for good companies with better stock appreciation because suppose you invest in a stock that yields a high dividend of 10% but the stock price falls by 25% in one year which would give you more loss in the overall invested amount despite you are earning high dividend income.
Investing in dividend-paying stocks is a good way to generate extra income but do consider stock price appreciation along with dividend return to get a better ROI (return on investment) of your stock investments.
