Investors invest in the stock markets to make profits in the form of increased capital or regular returns through dividends. Different investors have different preferences. Some prefer to invest in high-risk mid-cap companies for faster capital growth, whereas others may prefer low-risk blue-chip companies to earn stable regular returns. The choice of stocks entirely depends on one’s financial goals and preferences.
Here, we will have a look at some of the top dividend-paying stocks in India and also explain some of the factors to consider while investing in these stocks.
What are dividend-paying stocks?
A dividend is the portion of profits of a company that is distributed to existing shareholders. Although a profitable company is obligated to disburse dividends, many companies distribute these to shareholders as a way to reward them for the capital provided in running the business.
Top dividend-paying stocks
The table below shows the top high dividend-yielding stocks in the last 5 years:
| Stock | Dividend yield (p.a.)5-year average | Return on equity |
| D B Corp Ltd. | 42.92% | 7.69% |
| Vedanta Ltd. | 33.58% | 29.46% |
| Coal India Ltd | 9.34% | 43.58% |
| Hindustan Zinc Ltd. | 7.31% | 28.92% |
| Oil India Ltd. | 6.1% | 20.73% |
| National Aluminium Co.Ltd. | 7.12% | 25.41% |
| NLC India Ltd. | 4.71% | 7.72% |
| Clariant Chemicals Ltd. | 3.64% | 10.55% |
Note – Fisdom does not offer investment advice and the above-mentioned list of stocks are only for investor information to aid investment decisions.
Let’s have a look at these companies in detail:
- Coal India Ltd
Coal India Limited (CIL) is a state-owned coal mining company and is the single largest coal producer in the world. CIL has multiple subsidiaries spread across 85 mining areas in eight Indian states. As of 2020, the company had 352 mines and 12 coal washeries. The company’s coal outputs are used in the steel industry and power generation, among other areas.
- Hindustan Zinc Ltd
Hindustan Zinc Ltd. is a top zinc producer in India. It is also the world’s second-largest zinc-lead miner. The company operates 5 zinc-led mines, 1 silver refinery, and four zinc smelters, among others. The company is also engaged in wind power and solar power through its plants in Rajasthan, Maharashtra, Gujarat, Karnataka, and Tamil Nadu.
- Clariant Chemicals Ltd
Clariant Chemicals is one of the world’s leading speciality chemical companies. It primarily manufactures and sells speciality chemicals to cater to sectors like agriculture, infrastructure, housing, and personal care. The company focuses on value creation through innovative and sustainable solutions.
- Vedanta Limited
Vedanta Limited, part of Vedanta Group, is one of the leading diversified natural resources companies globally. The company focuses on the production of zinc, silver, lead, aluminium, iron ore, copper, commercial power and oil & gas. It operates in India, Ireland, Namibia, South Africa and Australia. In 2021, the company announced its plans to double its manufacturing capacities for silver and steel segments.
- NLC India Ltd
NLC India Limited is a government-owned company with a 79% stake held by the Government of India. The company is mainly engaged in mining of lignite, coal, and power generation. It operates 4 open-cast lignite mines and 5 thermal power stations.
- Oil India Limited
Oil India Limited is a government-owned company with 57% stake controlled by the Government of India. It is into integrated exploration for extracting crude oil and natural gas. Some of its business segments include crude oil, natural gas, pipeline transportation, renewable energy, etc. The company operates across several states in India and also through offshore areas like Andaman.
- D B Corp Ltd
D B Corp Ltd. is one of India’s largest print media companies, that publishes newspapers like Dainik Bhaskar, Divya Bhaskar, Divya Marathi, etc. It is also engaged in radio and digital spaces. The company operates through 94.3FM radio. Its digital media presence is mainly seen through dainikbhaskar.com, divyabhaskar.com, moneybhaskar.com, etc.
- National Aluminium Company Ltd
National Aluminium Company is a public-sector company in the business of manufacturing and selling alumina and aluminium. Also known as NALCO, the company is known to have Asia’s largest integrated aluminium complex that includes aluminium smelting and casting, alumina refining, bauxite mining, power generation, etc. The company has had a zero debt track record.
Factors to consider while investing in top dividend stocks
While investors may be tempted to invest in high dividend-paying stocks, here are some of the factors to consider before investing:
- Dividend is not the only stock-selection criteria
Any investment strategy should include a range of aspects and not be solely focused upon dividends. It is important to choose high-quality stocks based on the company’s fundamentals and historical stock performance. Not all dividend-paying stocks may be good investments.
- Profit and Dividend
Any company would pay dividends from the profit it generates. If a company is paying a high dividend, it could mean that a significant portion of its profit is going to shareholders. This could result in very little portion being reinvested into the business. Low capital reinvestment can cause slower growth in the future and this can impact the stock price. Therefore, evaluating how a company uses its profits is very crucial to stock selection.
- No guarantee of dividends
If a company has paid a dividend in one year or since the past few years, it does not guarantee future dividend payouts. Dividend distribution depends on the company’s profitability and how it uses the profits. Hence, one should not focus only on dividend earnings while shortlisting stocks for investment.
- Dividends v/s capital growth
Even if one invests in top dividend-paying stocks, the amount cannot match up to capital appreciation from good stock investments in the long run. Therefore, an investor must evaluate the possibility of long-term returns from both dividend and capital appreciation of the stock investment.
Tax implications of dividend income
Any dividend income from stocks of an Indian company is taxable in India. For resident shareholders, dividend income from stocks held as investment is taxable under the head of ‘Other Income’ at the applicable tax slab, irrespective of the amount received. Further, under Section 194 of the IT Act, tax will be deducted at source (TDS) at 10% if the dividend income exceeds Rs 5,000 in a financial year.
If a shareholder qualifies as a ‘non-resident’ in India under the India income tax law, the dividend income is taxable at 20% plus applicable surcharge and 4% health and education cess on gross basis.
Conclusion
The list of top dividend-paying stocks is very dynamic since companies may or may not declare dividends during certain periods. Therefore, while considering stocks from the list mentioned above, investors must not keep dividend payments as the sole criteria for stock selection. To ensure better investment decision-making, investors must look at the holistic picture of a stock, right from company fundamentals, historical stock performance, market sentiments, personal investment goals, and profit utilisation.
FAQs
Some of the important metrics that investors must consider while investing in dividend-paying stocks include dividend yield, dividend payout ratio, P/E ratio, and earnings per share.
Yes, dividend income is taxable in India, as per the applicable income tax slab rates of individual taxpayers.
This depends on personal investment strategy and preference. Some investors prefer to invest for long-term capital appreciation, as they have a longer investment horizon. Many investors prefer dividend earnings for regular income.
When a company declares dividend, in the short run, it may see a rise in the stock prices and investors demand more stocks in the hope of future dividends. However, the prices of such stocks may fall after the expiry of dividend eligibility date since fewer investors may demand the stock.
