Best High Dividend Yield Stocks To Buy In India For 2017

high dividend yield stocks india

Update: List Of Dividend Yield Stocks May 2017

HDFC Sec has prepared a list of companies (CNX 500 stocks) that offer dividend yield of 3.00% and above.

Sr. No

Company

Dividend
(%)
Latest
Full Year
Dividend
(%)
Latest1
Full Year
EPS
Rs
CMP Rs PE Dividend
Yield %

1

Coal India

274 207 17.4 266 15.3 10.3%

2

Vedanta

1945 350 21.7 232.9 10.7 8.4%

3

Sonata Software

900 700 14.5 149.9 10.3 6.0%

4

C P C L

210 40 69.1 372.3 5.4 5.6%

5

NHPC Ltd

15 6 2.7 29.3 11.0 5.1%

6

Power Fin.Corpn.

69.5 91 25.7 142.1 5.5 4.9%

7

M R P L

60 0 14.7 130.1 8.9 4.6%

8

NMDC

515 1100 8.3 117.5 14.1 4.4%

9

I O C L

190 140 39.3 438.7 11.1 4.3%

10

Natl. Aluminium

56 40 3.3 66.6 20.3 4.2%

11

Rural Elec.Corp.

85.5 107 30.8 205.3 6.7 4.2%

12

Oil India

120 200 27.0 307.6 11.4 3.9%

13

MphasiS

200 160 38.3 573 15.0 3.5%

14

Indiabulls Hous.

1800 2250 68.5 1046 15.3 3.4%

15

SJVN

11 10.5 3.4 32.1 9.4 3.4%

16

O N G C

113.33 190 13.9 174.2 12.5 3.3%

17

Bajaj Corp

1150 1150 16.1 359.7 22.4 3.2%

18

NLC India

30 28 8.9 99.15 11.2 3.0%

Benefits of high dividend yield stocks

Investors who are looking to buy stocks with the ideal combination of safety and capital appreciation should buy high dividend yield stocks.

The USP of these stocks is that the high dividend yield offers a lot of protection to the investor from the vagaries of the stock market.

Dividend yield is computed depending on the payout and the price of the stock.

So, if a stock offers a dividend payout of Rs. 5 and the stock price is Rs. 100, the dividend works out to 5%.

If the stock price falls to Rs. 80, then, if the dividend payout remains unchanged, the yield rises to 6.25%. This rate of yield is very attractive and so a lot of investors will buy the stock. This will prevent the stock price from sliding further.

The capital appreciation in the stocks comes from the fact that companies that are able to pay regular dividends are obviously doing well in business and enjoy high rates of free cash flow.

It is obvious that the stocks of companies that are doing well business-wise will be in high demand from investors.





Hedge against volatility

High dividend yield stocks provide an excellent hedge against excessive market volatility. It is a sensible investment strategy to allocate some portion, say, 30%, to stocks which offer a high yield because these stocks can withstand a downward trend in the market without losing much ground.

What is dividend yield?

As noted above, dividend yield is calculated by dividing the payout per share by the current market price.

Example: If a stock is quoting at Rs. 100 and the dividend payout is Rs. 10, the dividend yield is Rs. 10/Rs. 100 = 10%.

What is dividend payout ratio?

The Dividend Payout Ratio reveals how much of the net earnings after tax are being paid out to the shareholders by way of dividends and how much is retained for business purposes.

A very high payout indicates that the Company does not have ambitious expansion plans and has no need for the funds. This may impact the question of whether one can expect high capital appreciation from the stock.

List of high dividend yield stocks

Here is a list of the best high dividend yield stocks. Several of these stocks are blue chips and are consistent performers. They also have high return on equity (ROE) and profit margin and are engaged in very good businesses.

Company Dividend
Price MktCap P/E P/B 5 Yr Avg Payout
(Rs) (Rs Cr) (x) (x) ROE (%) % FY16 Yield (%)
Hindustan Zinc Ltd.* 298 1,26,105 18.3 3.1 21 143.8 9.3
Coal India Ltd.* 310 1,95,744 16.8 5.3 37 121.2 8.8
Rural Electrification Corporation Ltd. 142 28,053 4.9 0.9 23 29.7 6.0
Power Finance Corporation Ltd. 130 34,347 5.3 0.9 19 29.7 5.3
Akzo Nobel India Ltd.* 1,438 6,712 30.3 7.7 19 161.8 4.9
Hexaware Technologies Ltd. 195 5,874 14.9 3.6 29 66.3 4.4
Mindtree Ltd. 451 7,570 15.9 2.9 29 44.5 3.6
Kewal Kiran Clothing Ltd.* 1,725 2,126 29.1 6.1 27 108.9 3.5
MPS Ltd. 658 1,224 16.0 3.7 33 57.5 3.3
Bajaj Corp Ltd.* 373 5,499 24.7 8.4 34 86.4 3.1
Sun TV Network Ltd. 527 20,782 22.2 5.2 26 66.9 2.9
VST Industries Ltd. 2,400 3,706 21.6 7.6 46 70.6 2.9
Accelya Kale Solutions Ltd.* 1,633 2,437 26.8 17.7 62 80.9 2.8
Torrent Pharmaceuticals Ltd. 1,299 21,982 16.4 5.5 38 34.4 2.7
Marico Ltd. 257 33,195 42.7 13.4 32 120.2 2.6
Infosys Ltd. 929 2,13,455 14.9 3.1 27 40.6 2.6
Swaraj Engines Ltd. 1,409 1,750 26.8 6.5 28 80.0 2.3
Hero MotoCorp Ltd. 3,179 63,487 18.2 6.4 46 46.5 2.3
Castrol India Ltd. 404 20,000 30.3 24.2 84 72.3 2.2
ITC Ltd. 258 3,12,914 31.2 7.5 34 69.0 2.2
Hawkins Cookers Ltd. 2,801 1,481 36.0 17.9 64 78.7 2.1
Tide Water Oil Company (India) Ltd. 5,846 2,037 26.2 3.4 22 47.0 2.1
DB Corp Ltd. 371 6,819 18.2 4.2 25 48.0 2.1
Credit Analysis And Research Ltd. 1,388 4,085 31.4 8.9 30 68.8 2.0
HCL Technologies Ltd. 809 1,14,145 14.2 3.7 33 40.0 2.0
Tata Consultancy Services Ltd. 2,230 4,39,386 16.8 5.3 41 35.3 2.0
Bajaj Auto Ltd. 2,838 82,115 21.6 5.4 38 42.1 1.9
TVS Srichakra Ltd. 3,200 2,450 12.6 4.8 36 24.7 1.9
Hindustan Unilever Ltd. 855 1,85,078 42.1 26.0 111 84.8 1.9
Note: * One time Special Devidend

Blue-chip PSU stocks with high dividend payouts

PSU stocks usually pay very high dividends to their shareholders. There is no risk of a capital loss in these stocks because the Promoter is the Government of India.

Lets us look at the top fifteen PSU stocks which pay high dividends:

Hindustan Zinc has a dividend yield of 9.5 percent.

Several other PSU stocks such as Coal India, REC and Power Finance Corporation also have high dividend yield.

Hindustan Zinc has declared a special one-time interim dividend of 1,375 per cent i.e. R. 27.50. The payout amounts to Rs 13,985 crore including dividend distribution tax (DDT).

List of PSU Oil Marketing companies (OMCs) and their track record

For FY 2016-17, all the oil marketing companies, namely, Hindustan Petroleum Corporation (HPCL), Indian Oil Corporation (IOC) and Bharat Petroleum Corp (BPCL) have declared generous ddividends as their profits have risen due to the fall in crude oil prices.

HPCL has declared an interim dividend of Rs 6.40 per equity share of face of Rs 10 each for the financial year 2016-17.

Indian Oil Corporation has declared an interim dividend of Rs 4.50 per share for FY2016-17.

BPCL has also declared interim dividend for FY 2016-17 of Rs 12 per equity share of face value Rs 10/- each i.e. 120 per cent on the paid-up equity share capital of the Company for the Financial Year 2016-17.

Private sector companies

Amongst the private sectors, the well-known companies which are known for hefty dividend payouts include MindTree, VST, Hexaware Technologies, Infosys and Castrol India.



Highest dividend paying stocks in India in last 5 years

There are several blue chip stocks that have an unbroken track record of paying the highest amount of dividend over the past five years.

In addition, the companies have a track record of high RoE and excellent business prospects. Let’s look at a list of these stocks:

(i) Apollo Tyres has gained leadership in the domestic auto tyre market. It has also created a leadership position in South Africa and Europe.

The cyclical upturn in the demand for passenger & commercial vehicles will benefit Apollo Tyres.
In addition, the expected anti-dumping ruling which will impose additional duties on imported Chinese truck radial tyres will benefit the Industry.

(ii) Bharat Petroleum Corporation Ltd (BPCL) is a blue chip PSU engaged in the oil marketing business. Its return on equity (ROE) has shown steady improvement over the years due to a fall in the crude oil prices and improving operational efficiencies.

OMCs like BPCL are likely to be in demand from investors due to factors like auto fuel deregulation, freedom from pricing controls, increased fuel consumption trends in India, and increasing prices of some end products like kerosene and LPG.

(iii) Petronet LNG is also an excellent candidate for dividends and growth. The consumption of LNG is seeing high demand from industrial consumers engaged in the manufacture of steel, refining, petrochemical etc.

Petronet LNG will also benefit because regulatory reforms are favouring a shift to gas from conventional fuels.

(iv) MRF is yet another blue chip stock. It is also a multibagger. It has a dominant presence in all segments (passenger and commercial vehicle tyre). It is also a leader in the replacement market.

MRF is expected to do very well because of improved demand from rural areas. It will also benefit from the revival of the mining sector.

(v) L&T Infotech is a subsidiary of the blue chip giant Larsen & Tuobro.

The Company has excellent management pedigree and has a high quality client base to work on.

The best part is that the stock is presently in the doldrums as the entire InfoTech sector is out of favour amongst investors due to the policies of the USA and Donald Trump. The low valuations coupled with the quality of the promoters and the management make L&T Infotech a very attractive bet from the point of view of safety and growth.

The three and five year track record provides a lot of comfort regarding the consistent manner in which the Company is operating. We can make the reasonable expectation that the Companies will perform in an equally efficient manner for the next three, five and ten years and create prosperity for the shareholders.

Dividend Darlings

Some stocks like Bajaj Holding, Ashok Leyland, Mangalam Cement, JBF Industries, PSL Industries and other mid-cap blue chip stocks of high quality have been fondly given the title of “dividend darlings” because they are the ideal combination of growth and safety. The best part is that the dividend yield from these stocks is more than that offered by Fixed Deposits. Also, while the interest on fixed deposits are chargeable to tax, the dividends are tax-free.

Ishleen Kaur of BBC has given a good explanation on why such stocks deserve to be bought and held in the portfolio.

Dividend Distribution Tax

All domestic companies in India are required to pay Dividend Distribution Tax (DDT). This tax is in addition to the income tax payable on the total income. The DDT is payable at the rate of 15%. The effective tax rate for dividend distribution after surcharge and cess works out to about 20%. In the Union Budget for financial year 2016-17, it is provided that dividends in excess of Rs 10 lakh would be chargeable at the rate of 10% for individuals, Hindu Undivided Family or partnership firms. Even private trusts have been made liable for the 10% tax by the Finance Bill for 2017-18.

Disadvantages

Generally speaking, a company that pays out high dividends is signaling that its growth prospects are low. In other words, the Company does not have any more profitable avenues to deploy capital and so it is returning the excess funds in the form of dividends.

Obviously, one cannot expect such mature companies which have no ambitious growth plans to become multibaggers.

Two striking examples blue chip PSU stocks like Coal India and NTPC. Though both companies have good business models and are consistent dividend payers, there has not been much capital appreciation in their stock price in comparison to their private sector counterparts which have become multibaggers in the same time.

Precautions

While investing in high dividend stocks, the following aspects have to be considered:

(i) Does the company have a consistent track record or are the high payouts a recent phenomenon?

(ii) Has the company been able to maintain a steady growth rate in sales and profitability?

(iii) Is the Company borrowing heavily? A heavy dividend payout coupled with increasing borrowings and high interest payouts reveals fiscal recklessness.



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