India is investing at a faster rate owing to the current bullish nature of the stock market and the payouts by companies committed to rewarding their shareholders.
For long-term investors, dividend returns are crucial as they are an additional income earned over and above the capital gains by holding onto a stock.
Therefore, for those of you looking to build wealth while enjoying regular cash flow, dividend stocks present an attractive opportunity. Let’s dive into why these investments are worth considering and how you can make the most of them.
But first, what are dividend stocks?
Dividend stocks can be defined as those publicly-listed companies which offer regular dividends to their shareholders. They are distributed quarterly or at the end of the financial year in the form of cash or reinvestment of extra stocks (a strategy that allows investors to use their dividends to purchase extra shares of the company rather than receiving them as cash). These payments offer a reliable income stream, making them particularly appealing to investors seeking passive income.
Point to note: High dividend growth stocks can help keep your wealth accumulation on track and mitigate stock market risks during volatility. Consequently, you can check your dividend returns by yourself.
What are the other benefits of dividend stocks?
Dividend stocks are a preferred choice among investors over daily gains not just for income sources but for higher returns in the long term. This is where the magic of compounding plays up. The power of compounding can turn modest dividend payments into substantial wealth over time. Bonus point: You can leverage better returns by choosing companies with a history of stable and increasing dividends and by gauging their financial history.
As already mentioned, dividend stocks can also prove to mitigate market volatility. High-yielding dividend stocks often belong to established companies with stable earnings even during market turbulence. These stocks tend to be less volatile compared to high-growth, speculative investments.
Further, companies that consistently pay dividends are often those with strong financial health and effective management. Investing in such companies can provide added security and confidence in your investment choices.
Let's look at some of the top companies with high dividend-yield rates for September 2024
Several Indian companies have established themselves as reliable dividend payers. Here are a few noteworthy options of companies that have given significant dividend yields. The dividend yield is calculated as dividend per share for the most recent financial year (here, FY2024-2025) divided by the close price of the stock.
Indian Oil Corporation Ltd: IOC is a leading Maharatna national oil company in India. At the time of market closing as on September 10, 2024, this highest dividend-giving company (vs sector)’s annual dividend yield comes at 6.67%.
Vedanta Ltd: The Billionaire Anil Agarwal-owned conglomerate has a diversified portfolio, producing essential commodities for global decarbonisation and the energy transition. Its annual dividend yield comes at 6.11%.
Bharat Petroleum Corporation Ltd: BPCL operates in India’s petroleum industry, focusing on refining crude oil and marketing petroleum products. Its annual dividend yield comes at 5.95%.
Hindustan Petroleum Corp Ltd: HPCL is a mega public sector undertaking (PSU) with Navratna status and is owned by the government of India. Its annual dividend yield comes at 4.99%.
Coal India Ltd: This Kolkata-based PSU under the Ministry of Coal, Government of India is the world’s largest coal producer and one of the biggest corporate employers. The large-cap has a market capitalisation of Rs 2,98,553.37 cr., as of 10th September 2024. Its annual dividend yield comes at 5.26%.
Oil and Natural Gas Corporation Ltd: ONGC stands as India’s largest producer of crude oil and natural gas, accounting for about 75% of the nation’s domestic output. Its annual dividend yield comes at 4.10%.
Note: The data in the list of top dividend yield stocks in India is as of 10th September 2024. This data is derived from Tickertape Stock Screener.
Now, that you already have a fair knowledge of dividend stocks and why you can explore these stocks to increase your returns from this article, let's focus on how you can choose a dividend stock as per your requirements.
Dividend Yield: This metric indicates how much a company pays in dividends relative to its stock price. However, it’s important to assess whether the company can sustain these payments.
Payout Ratio: This ratio measures the proportion of earnings paid out as dividends. The higher the payout ratio, the better.
Dividend History: Companies with a consistent and growing dividend history are preferable. In India, government-owned PSUs are an option.
Industry Trends: Consider the overall health of the industry in which the company operates. Stable industries with consistent demand are more likely to support ongoing dividend payments.
To wrap it up, dividend stocks provide a combination of income, stability, and long-term growth, making them a viable investment option.