In this article we discuss merits of investing in best dividend paying stocks and identify various types of high dividend stocks in India for investing. We cover the following sub-topics:
- Research findings on the merits of investing in high dividend stocks in India and Globally
- Top 50 dividend paying stocks in India
- Highest dividend paying stocks last 10 years in India
- 15 High dividend blue chip stocks in India
- 15 Highest dividend paying penny stocks in India
- 10 best dividend paying stocks for the long term in India
Research findings on high dividend yield strategy
Let’s begin by summarizing these researches. They are as follows:
1. Dogs of the Dow.
This strategy popularized by Michael B. O’Higgins in 1991, proposes to invest equally in ten high dividend yield stocks that are DIJA constituents, and rebalance annually. Proponents of this strategy argue that blue-chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company; the stock price, in contrast, fluctuates through the business cycle. This should mean that high dividend yield stocks, with a high dividend relative to stock price, are near the bottom of their business cycle and are likely to see their stock price increase faster than low-yield companies.
From 2000 – date, this strategy has performed well, outperforming DIJA & S&500.
Source: Dogs of the Dow Total Return: Dog Years
2. David Dreman’s Contrarian Strategies
David Dreman in his investment classic, Contrarian Investment Strategies explored this strategy in detail. Dreman took 1500 largest companies from Compustat database and studied them for a period of 27 years beginning January 1 1970, through 31 December 1996. Companies were sorted into 5 equal groups based on dividend yields and rebalanced quarterly. Annual returns are as shown below.
| Low | 2 | 3 | 4 | High | Market | |
| Dividend | 8.0% | 5.4% | 3.9% | 2.2% | 0.7% | 4.0% |
| Appreciation | 8.1% | 12.1% | 11.2% | 11.6% | 11.5% | 10.9% |
| Total | 16.1% | 17.5% | 15.1% | 13.8% | 12.2% | 14.9% |
The best dividend paying stocks outperformed the market by 1.2%, and stocks with low or no yield by 4%.
Analysis of the composition of returns showed that almost half of the annual returns of the high dividend yield stocks came from the yield itself. Further, annual price appreciation of the highest yielding group was lower than any of the other worse groupings.
In summary, results indicated, buying high dividend yield stocks beats the market, although the price appreciation may be lower, and the total returns may be lesser compared to other contrarian strategies such as – Low P/E, P/CF and P/BV.
3. James P O’Shaughnessy’s findings
James P O’Shaughnessy in What Works on Wall Street, elaborately described the impact of dividend yields on stock returns. His findings are broadly in-line with other studies, although his results indicated that the effects of high dividend yield on returns were more pronounced for large cap stocks.
Using data from S&P Compustat database spanning over a period of 52 years beginning December 1951 through December 2003, he observed that cumulative returns of 50 Large Cap high dividend yield stocks (stocks with market cap > average, or mostly top 15% stocks) exceeded the Large Stocks universe by more than double (~143%), while returns of high yield All Stocks (stocks with mcap > 185M) were marginally better than All Stocks universe in general (cumulative ~ 18%).
Criticism
These results are not entirely without criticism. Many of these studies uses equally weighted portfolios, balanced periodically (annually or quarterly). Equally weighted portfolios perform better than their price weighted counterparts as we saw in one of the previous articles. As such, it has been argued by some that the superior performance of Dogs of the Dow strategy in particular, is at least in part due to the equal weightage of the constituents, as DIJA is a price weighted index.
With this global data in context, let’s turn our focus back to the Indian market.
Investing in high dividend stocks in India
First, the obvious question: does investing in high dividend stocks produce superior returns in India?
The easiest way to check that is to compare returns of benchmark Nifty 50 Total Returns Index, with Nifty Dividend Opportunities Total Return Index. The later is a strategy index that invests in high dividend stocks in India.
For a 12 year period starting 2008 through to 2019, the Dividend Opportunities Index generated an annual return of 8.61%, beating the Nifty 50 index (7.14%) by nearly 1.5% a year.
Now that we know that investing in high dividend stocks can be a valid strategy, let’s try to identify the highest dividend paying stocks in India.
Highest dividend paying stocks last 10 years in India
To generate this list, we added up the total dividend paid by the stocks for the past 10 years and divided by average market capitalization over the same period and arrived at the average historical dividend yield.
Additionally, we put a filter on market capitalization (m-cap >250 crores) to remove very small companies to arrive at the below list of 25 highest dividend paying stocks last 10 years in India.
| Name | Div Yld % | Hist Div Yld | ROE % | ROA % | PBV | M-Cap Cr. | Sector |
|---|---|---|---|---|---|---|---|
| Manaksia | 19.98% | 6.90% | 5.99 | 5.73 | 0.37 | 344.47 | Non Ferrous Metals |
| Indiabulls Hous. | 14.66% | 10.53% | 13.75 | 2.03 | 0.61 | 9778.68 | Finance |
| Banco Products | 14.12% | 8.41% | 9.48 | 8.67 | 1.31 | 1012.7 | Auto Ancillaries |
| NLC India | 13.46% | 8.28% | 11.32 | 3.46 | 0.55 | 7272.91 | Power Generation & Distribution |
| Balmer Law. Inv. | 9.53% | 7.62% | 48.52 | 48.52 | 4.98 | 873.68 | Finance |
| Oil India | 9.51% | 5.58% | 13.2 | 8.68 | 0.44 | 12091.12 | Crude Oil & Natural Gas |
| PTC India | 9.31% | 5.43% | 9.99 | 2.36 | 0.41 | 1749.42 | Power Trading |
| Coal India | 9.01% | 7.11% | 56.99 | 17.25 | 2.21 | 82087.54 | Mining & Mineral products |
| SJVN | 8.73% | 9.58% | 14.47 | 11.4 | 0.8 | 9903.08 | Power Generation & Distribution |
| REC Ltd | 7.85% | 6.44% | 14.22 | 1.66 | 0.68 | 27668.6 | Finance |
| Hindustan Zinc | 7.73% | 9.29% | 18 | 16.76 | 3.18 | 116470.92 | Non Ferrous Metals |
| Polyplex Corpn | 6.73% | 5.50% | 15.17 | 8.74 | 0.69 | 2191.98 | Packaging |
| Balmer Lawrie | 6.35% | 5.57% | 10.07 | 8.93 | 1.4 | 2021.27 | Diversified |
| NHPC Ltd | 6.2% | 6.85% | 10.89 | 5.6 | 0.74 | 24308.98 | Power Generation & Distribution |
| Andhra Sugars | 6.18% | 5.30% | 17.23 | 12.5 | 0.7 | 877.01 | Sugar & Caustic Soda |
| Vedanta | 5.74% | 7.87% | 15.16 | 6.1 | 1.09 | 61538.19 | Mining & Mineral products |
| PTL Enterprises | 5.45% | 6.23% | 9.3 | 8.16 | 0.6 | 303.81 | Tyres |
| NMDC | 4.73% | 5.09% | 13.45 | 12.84 | 1.14 | 32793.48 | Mining & Mineral products |
| I O C L | 4.44% | 9.94% | 8.74 | 4.07 | 0.87 | 90093.5 | Refineries |
| H P C L | 4.33% | 7.61% | 11.14 | 5.1 | 0.99 | 34346.96 | Refineries |
| Natl. Aluminium | 3.22% | 6.78% | 1.33 | 1.24 | 0.86 | 8693.78 | Non Ferrous Metals |
| Clariant Chemical | 3.11% | 5.93% | 7.83 | 7.49 | 1.64 | 815.94 | Chemicals |
| HEG | 2.62% | 6.37% | -0.13 | -0.11 | 1.05 | 3684.33 | Electrodes - Graphites |
| Orient Paper | 2.39% | 5.29% | 1.84 | 1.46 | 0.34 | 444.53 | Paper |
| Graphite India | 0.64% | 7.92% | 0.91 | 0.84 | 1.36 | 6070.32 | Electrodes - Graphites |
Next we try to identify a list of high dividend blue chip stocks in India.
15 High dividend blue chip stocks in India
Blue chip stocks generally mean shares of nationally recognized, well established and financially sound companies. Using a simple filter on market capitalization (m-cap > 25,000 crores) and sorting by dividend yield, we have the following list of 15 high dividend blue chip stocks in India
| Name | Div Yld % | ROE % | ROA % | PBV | CMP | M-Cap Cr. |
|---|---|---|---|---|---|---|
| Coal India | 9.01 | 56.99 | 17.25 | 2.21 | 133.2 | 82087.54 |
| Power Fin.Corpn. | 8.21 | 19.64 | 1.5 | 0.54 | 115.65 | 30532.54 |
| REC Ltd | 7.85 | 14.22 | 1.66 | 0.68 | 140.1 | 27668.6 |
| Hindustan Zinc | 7.73 | 18 | 16.76 | 3.18 | 275.65 | 116470.92 |
| Ambuja Cements | 6.6 | 11.97 | 9.59 | 2.06 | 257.7 | 51170.08 |
| Vedanta | 5.74 | 15.16 | 6.1 | 1.09 | 165.55 | 61538.19 |
| Oracle Fin.Serv. | 5.43 | 25.42 | 24.39 | 4.81 | 3314.65 | 28524.12 |
| Petronet LNG | 5.18 | 25.81 | 19.93 | 3.15 | 241.4 | 36210 |
| Power Grid Corpn | 5.15 | 17.25 | 5 | 1.5 | 194.2 | 101597.48 |
| ITC | 4.82 | 25.29 | 24.98 | 4.39 | 210.7 | 259273.97 |
| GAIL (India) | 4.77 | 19.45 | 16.27 | 1.19 | 134.05 | 60458.45 |
| NMDC | 4.73 | 13.45 | 12.84 | 1.14 | 111.9 | 32793.48 |
| Indus Towers | 4.35 | 21.56 | 17.91 | 4.73 | 241.45 | 65069.25 |
| H P C L | 4.33 | 11.14 | 5.1 | 0.99 | 225.4 | 34346.96 |
| B P C L | 4.17 | 12.56 | 4.94 | 2.14 | 396.05 | 85913.25 |
| Hind.Aeronautics | 3.51 | 22.03 | 10.22 | 2.27 | 948 | 31699.94 |
Highest dividend paying penny stocks in India
In the US, stocks below one dollar (roughly 75 rupees today) are referred to as penny stocks. In the context of Indian markets, considering 100 rupees as the cut-off, and ranking by dividend yield, following 15 stocks may be considered as highest dividend paying penny stocks in India.
| Name | Div Yld % | ROE % | ROA % | PBV | CMP | M-Cap Cr. |
|---|---|---|---|---|---|---|
| Manaksia | 19.98 | 5.99 | 5.73 | 0.37 | 52.55 | 344.47 |
| UFO Moviez | 17.23 | 7.32 | 5.48 | 0.78 | 87.05 | 246.79 |
| NLC India | 13.46 | 11.32 | 3.46 | 0.55 | 52.45 | 7272.91 |
| D B Corp | 12.48 | 15.8 | 13.77 | 0.84 | 80.1 | 1401.39 |
| PTC India | 9.31 | 9.99 | 2.36 | 0.41 | 59.1 | 1749.42 |
| SJVN | 8.73 | 14.47 | 11.4 | 0.8 | 25.2 | 9903.08 |
| H U D C O | 7.19 | 14.66 | 2.36 | 0.69 | 43.1 | 8628.19 |
| Engineers India | 7.01 | 17.78 | 17.65 | 1.91 | 73.5 | 4644.55 |
| PNB Gilts | 6.84 | 25.59 | 2.21 | 0.61 | 43.85 | 789.34 |
| Guj Pipavav Port | 6.41 | 14.24 | 13.59 | 2.1 | 87.4 | 4225.27 |
| NHPC Ltd | 6.2 | 10.89 | 5.6 | 0.74 | 24.2 | 24308.98 |
| Ircon Intl. | 5.47 | 11.42 | 5.96 | 0.97 | 86.8 | 4081.84 |
| PTL Enterprises | 5.45 | 9.3 | 8.16 | 0.6 | 45.9 | 303.81 |
| O N G C | 5.39 | 7.55 | 4.21 | 0.56 | 92.75 | 116682.09 |
| R C F | 5.18 | 8.82 | 3.54 | 0.92 | 54.85 | 3026.02 |
Finally, we look at the best Dividend Paying Stocks for long term in India.
Top 50 dividend paying stocks in India
The easiest way to find this is to look into the constituents of Nifty Dividend Opportunities 50 Index itself. Below, we have the constituents of Nifty Dividend Opportunities 50 Index, sorted by dividend yield, as of end October, 2020:
Table: Top 50 dividend paying stocks in India
10 best dividend paying stocks for the long term in India
As you can see, the top 10 best dividend paying stocks in India are giving a dividend yield of 6.7% or more, which is significantly higher the SBI Fixed Deposit rate as on date.
Below, we provide business overview of the 10 best dividend paying stocks in India:
Indiabulls Housing Finance Ltd.
Dividend Yield – 21.7%
Indiabulls Housing Finance Ltd is an India-based housing finance company. The Company is primarily engaged in the business to provide finance to individuals and other entities.
Its offerings include home loans for resident Indians, home loans for non-resident Indians (NRIs), loan against property and home loan balance transfer. The Company also offers home renovation loan, rural home loans and home extension loans
Oil India Ltd.
Dividend Yield – 12.4%
Oil India Limited is engaged in providing crude oil and natural gas. The Company’s segments include Crude Oil, Natural Gas, LPG, Pipeline Transportation and Others.
It owns and operates approximately 10 drilling rigs and over 10 work-over rigs, besides charter hiring drilling rigs based on operational requirement. The Company is involved in crude oil transportation in Southeast Asia, and owns and operates approximately 1,430 kilometers of cross-country crude oil pipelines. It owns approximately 10 crude oil pumping stations and over 20 repeater stations spread across the eastern India states of Assam, West Bengal and Bihar.
The Company produces approximately five million metric standard cubic meter per day (MMSCUMD) of natural gas and has a pipeline network for collection and supply of gas as fuel and feedstock to various industries, such as refineries, fertilizer and petrochemical plants, and power generation plants.
REC Ltd.
Dividend Yield – 11.0%
REC Limited, formerly Rural Electrification Corporation Limited, is engaged in other financial services and activities-other Credit granting. The Company provides finance to power sector. It finances and promotes rural electrification projects all over the country.
It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects as are sponsored by them. It provides loan assistance to state electricity boards (SEBs)/State Power Utilities for investments in rural electrification schemes through its corporate office located at New Delhi and over 20 field units, which are located in most of the states.
It has sanctioned approximately 580 transmission and distribution schemes, which include primary power evacuation schemes associated with generating plants, system improvement schemes, including feeder segregation schemes, bulk loan schemes and intensive electrification schemes.
Coal India Ltd.
Dividend Yield – 10.8%
Coal India Limited (CIL) is an India-based coal mining company, which is engaged in the production and sale of coal. The Company offers products, including Coking Coal, Semi Coking Coal, Non-Coking Coal, Washed and Beneficiated Coal, Middlings, Rejects, Coal Fines/Coke Fines, and Tar/Heavy Oil/Light Oil/Soft Pitch.
Its Middlings are used in power generation, brick manufacturing units and cement plants. The Washed and Beneficiated Coal products are used in the manufacturing of hard coke for steel making and power generation. Its Semi Coking Coal products are used as blend-able coal in steel making, merchant coke manufacturing and other metallurgical industries. Its Non-Coking Coal products are used for cement, fertilizer, glass, ceramic, paper, chemical and brick manufacturing, and for other heating purposes.
CIL operates through approximately 82 mining areas spread over eight provincial states of India
IDFC Ltd.
Dividend Yield – 10.4%
IDFC Limited is a non-banking finance company, which is engaged in investing business. Its segments include Financing, which includes Banking Business, and Others, which includes asset management.
The Company is involved in holding investment in IDFC Financial Holding Company Limited, which in turn, holds investments in IDFC Bank Limited (IDFC Bank), IDFC Alternatives Limited, IDFC Asset Management Company Limited and IDFC Infra Debt Fund Limited.
The Company, through its subsidiaries, is engaged in businesses, including Banking business, Public Markets Asset Management Infrastructure Debt Fund and Alternative Asset Management. IDFC Bank’s businesses are split into three parts: Commercial & Wholesale Banking, Bharat Banking and Consumer Banking. Its Commercial Banking business comprises the Middle Market Group, and the Small & Medium Enterprises Group.
Engineers India Ltd.
Dividend Yield – 8.0%
Engineers India Limited (EIL) is an engineering consultancy, and engineering, procurement and construction (EPC) company in the hydrocarbons and petrochemicals industry.
The Company’s segments are Consultancy & Engineering Projects, and Turnkey Projects. Its services include technologies, pre-Front End Engineering Design (FEED) and FEED, project management, procurement services, construction services and specialized services.
The Company focuses on various sectors, including fertilizer and liquefied natural gas (LNG), non-ferrous metallurgy, infrastructure, strategic crude oil storage, nuclear and solar energy, and exploration and production.
It offers various technologies for petroleum refining, oil and gas processing, and aromatics. The Company’s projects include Guru Gobind Singh Refinery Project, Bina Refinery Project, Panipat Naphtha Cracker Project, Dabhol Bangalore Pipeline Project, Phase II Expansion of Alumina Refinery and Deen Dayal Field Development Project.
Oil & Natural Gas Corporation Ltd.
Dividend Yield – 7.8%
Oil and Natural Gas Corporation Limited is a global energy holding company. The Company is engaged in the exploration, development and production of crude oil and natural gas.
The Company’s segments include Exploration & Production (E&P), and Refining. The Company’s geographical segments include operations in two categories: In India, which includes Onshore and Offshore, and Outside India.
The Company’s business spread include various areas, such as oil field services, transportation of the oil and natural gas, and production of value-added products, such as Liquefied Petroleum Gas (LPG), Naphtha, Refining, Petrochemicals, Power, unconventional and alternate sources of energy.
The Company’s subsidiaries include ONGC Videsh Limited (OVL), Mangalore Refinery and Petrochemicals Limited (MRPL) and ONGC Mangalore Petrochemicals Limited. The Company’s oil and gas reserves are located internationally at Russia, Colombia, Vietnam, Brazil and Venezuela.
GAIL (India) Ltd.
Dividend Yield – 7.7%
GAIL (India) Limited is an integrated energy company in the hydrocarbon sector. The Company is engaged in gas marketing.
The Company’s segments include Transmission services, which includes natural gas and liquid petroleum gas (LPG); Natural Gas Trading; Petrochemicals; LPG and other Liquid Hydrocarbons; City Gas Distribution, and Other Segments, which includes GAIL TEL, exploration and production (E&P), City Gas and Power Generation.
The Company is engaged in activities, including transportation through pipeline; manufacture of basic chemicals, fertilizer and nitrogen compounds, plastics and synthetic rubber in primary forms; extraction of crude petroleum; extraction of natural gas, and electric power generation, transmission and distribution. The Company’s products and services include natural gas marketing and transmission; petrochemicals (polyethylene and polypropylene), and liquid hydrocarbons production (LPG, propane, pentane and naphtha).
NHPC Ltd.
Dividend Yield – 7.5%
NHPC Limited is engaged in electricity generation. The Company is engaged in electric power generation by hydroelectric power plants. The Company is also engaged in contracts, project management and consultancy works.
Its power stations include Bairasiul, Salal, Chamera-I, Tanakpur, Dhauliganga, Rangit and Loktak. Its focuses on Teesta Low Dam-IV Hydroelectric Project (160 megawatt), West Bengal; Kishanganga Hydroelectric Project (330 megawatt), Jammu and Kashmir; Parbati- II Hydroelectric Project (800 megawatt), Himachal Pradesh, and Subansiri Lower Hydroelectric Project (2,000 megawatt), Assam/Arunachal Pradesh.
It provides consultancy services in various fields of hydropower, including river basin studies, survey works, design and engineering, geological studies, geotechnical studies, hydraulic transient studies, hydrological studies, contract management, construction management, equipment planning, underground construction, testing, commissioning, and operation and maintenance.
RITES Ltd.
Dividend Yield – 6.7%
Rites Limited is an India-based engineering and consultancy company. The Company offers transport infrastructure consultancy, engineering and project management services.
It provides its services through five operational segments that include Consultancy Services, Turnkey Construction Projects, Export of rolling stock, equipments and spares, Leasing of railway rolling stock and equipments, and Power generation.
The Company provides consultancy in transport infrastructure; leasing, exports, maintenance and rehabilitation of rolling stock, railway equipment and modernization of railway workshops, and rehabilitation, operation and maintenance of railway systems.
It is also engaged in the business of generating power from windmills and solar energy plants; power trading; manufacturing and rehabilitation of wagons, and carrying out civil construction work. It also provides project management consultancy, inspection, quality assurance services.
Conclusion
In summary, building a portfolio of equally weighted high dividend stocks, balanced periodically (quarterly or annually), generally beats the market, although, the margin of outperformance can be low compared to other contrarian investment strategies. One can use this strategy if seeking for regular income, otherwise, it might not be entirely unreasonable to explore alternative more rewarding strategies.
Disclaimer: This article is for information purpose only and does not constitute financial advice, OR recommendation to buy or sell any stocks. Author may have vested interests. Refer to T&C and full disclaimer. All data as on end October, 2020.
Credits
Reuters India, for the company overviews
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