Want to have a steady flow of income at retirement?
Yes? But you don’t know how?
Well, you can start by accumulating high dividend paying stocks.
But, what are dividend stocks?
Dividend stocks are stocks of the company that offers regular dividends to its shareholders.
According to Investopedia, these companies usually are well established, with stable earnings and a long track record of distributing some of those earnings back to shareholders.
Now you must be thinking,
Do all well-established companies pay dividends?
Well, not all such companies pay dividends.
A dividend is paid out of the profits that the company earns through its operations. The rate of dividend is decided by the board of directors and approved in the shareholder’s meeting.
It is not mandatory for profit-making companies to pay a dividend.
Types of Dividend :
There are various types of dividends such as
- Cash Dividend
- Stock Dividend
- Script Dividend
- Property Dividend, etc.
But, I think too much diversification leads to chaos.
So we will be focusing on the three most common dividends provided by the company to its shareholders :
1. Cash Dividend :
The cash dividend is the most popular and common dividend provided by most companies. The money is deposited into the shareholders’ bank accounts depending on the number of shares held by them.
The dividend is also paid on the face value of the share.
Let us understand it with the help of an example
| ABC Company | |
| Face Value | Rs 10 |
| Dividend Declared | 50 % of the face value |
| Dividend received on one share | 50% * 10 = Rs 5 |
In this scenario, each shareholder will get Rs 5 dividend on every share held by them. It will be automatically transferred to their bank account few days after the ex-dividend date.
Woah, What’s this Ex-dividend date?
An investor should be familiar with these four dates defined with simple one-liners to receive a cash dividend.
| S. No. | Dates | Meaning |
| 1. | Declaration Date | The date on which the company announces dividend |
| 2. | Ex-dividend Date | Shareholders should hold the shares before the ex-dividend date to receive a dividend. |
| 3. | Record Date | The date on which the company looks at shareholders who are eligible to receive dividend |
| 4. | Payment Date | The date on which dividend is paid to the shareholders. |
2. Special Dividend
A special dividend is given in special circumstances such as excess cash that is not currently being utilized by the company. Usually, government companies announce special dividends from time to time.
BPCL is an excellent example of a special dividend. The company announced a special dividend of Rs 35 on account of excellent Q4’21 results.
3. Preferred Dividend
Such a dividend is paid to the shareholders of the company holding preferred stocks. These shareholders are paid a dividend before the common stock shareholders.
How dividend affects stock price?
Well, stock prices revolve around the basic principle of demand and supply.
If demand for a particular stock rises then the share price of the stock ideally goes up.
Similarly, if the demand of a particular stock falls, the stock’s share price ideally moves down.
Dividend declaration always affects the share price of the stocks. The stock begins to trade at a premium once the company declares a dividend. The investors are also willing to buy the share at that premium to receive the dividend.
Similarly, once the ex-dividend date passes and the shareholders receive the dividend. The price of the stocks falls for the short term as investors try to sell the share.
If you guys have been with me so far well then the best part starts here.
Best Dividend Stocks To Invest In India
Listed below are the best dividend stocks that I have come across. I have done a lot of research and analysis in finding these stocks. I advise you to do your own analysis before investing or trading.
1. ITC Limited
ITC holds a monopoly in the tobacco business. It is the largest manufacturer of cigarettes and we all know that the demand for cigarettes isn’t going to fall anytime soon.
According to Wikipedia the company was established in 1910 as the Imperial Tobacco Company of India Limited, the company was renamed I.T.C. Limited in 1974.
The company is also into other business segments like FMCG, Hotels, paper, Packaging, etc.
I guess most of us preferred classmates registers as a kid. Well, Classmate is a brand of ITC.
Ashirawaad Aata is also an ITC product
So. you see we have been using ITC products in our day-to-day life. So why not invest in the same.
| ITC Limited | |
| Current Market Price | Rs 204 |
| ROCE | 28.52% |
| Dividend Yield | 5.28% |
| Face Value | Rs 1 |
ITC maintains a healthy dividend payout ratio. I think it’s better to invest in ITC rather than Fixed Deposits.
2. Indian oil corporation
The company is in the refining business with the majority stake owned by the government.
The company owns 11 refineries in India and holds 32% of the total refinery capacity.
The company has around Rs 26,000 crores of free cash flow and positive reserves and surplus.
| Indian Oil Corporation | |
| Current Market Price | Rs 109 |
| ROCE | 15.4% |
| Dividend Yield | 9.65% |
| Face Value | Rs 10 |
An interesting fact about government-owned companies is that they usually pay great dividends.
But what’s the reason for such a great dividend?
Well, since a majority of the stake is owned by the government. The majority of the dividend declared will be received by the government only.
That’s the main reason people can expect high dividends from government stocks
3. Tata Consultancy Services
TCS is the flagship company of the Tata group and one of the leading companies in the IT sector. It has the reputation for following customer – centric approach.
The company also generates revenue from other fronts like communication, banking, financial services, etc.
The company has a ROCE of more than 48% and it pays almost 70% of its cash flows as a dividend.
The company also announced a massive 1500% dividend to its shareholders on 12/04/2021.
| Tata Consultancy Services | |
| Current Market Price | Rs 3,321 |
| ROCE | 48.9% |
| Dividend Yield | 1.14% |
| Face Value | Rs 1 |
TCS is a must-have stock for the dividend portfolio.
4. GAIL
Gail is the market leader in natural gas. Huge investment is required in setting up the pipeline and regulatory framework. As a result, the entry barriers in the natural gas sectors remain high.
Gail enjoys a monopoly with a 70% market share in the natural gas transmission sector.
The company is also diversifying its revenue stream by going into the business manufacturing of petrochemicals and liquified petroleum gas (LPG).
| GAIL | |
| Current Market Price | Rs 151 |
| ROCE | 13.5% |
| Dividend Yield | 4.21% |
| Face Value | Rs 10 |
The company has strong fundamentals with low debt and an impressive dividend payout ratio of 38%.
5. Sun Tv Network
Sun tv is Asia’s largest tv network. The company is engaged in broadcasting satellite tv and radio software programming.
Sun group aims to have a total of 43 TV channels of which 32 are currently owned and operated by them.
| Sun Tv Network | |
| Current Market Price | Rs 556 |
| ROCE | 30.8% |
| Dividend Yield | 4.75% |
| Face Value | Rs 5 |
Sun tv has the highest reserves of Rs 6,800 crores compared to its peers. The company also maintains a healthy dividend payout ratio of 35%
There are more than 6800 companies that are listed on BSE and NSE altogether. Out of them, these 5 are my personnel recommendation.
I suggest you conduct your own analysis before investing or trading.
Happy Investing!
A commerce graduate who is on a mission to educate people about investment and personal finance.