A dividend is a distribution of profits by a company to its shareholders.
Though it is not mandatory for companies to pay dividends, there are a few companies in the Indian stock market that are famous for paying large dividends year after year.
Those who pay dividends are favoured by a section of investors as it works as a secondary income for them, assuming they have a primary source of income, say a salary. Some investors, who have large stock holdings and are retired, depend on dividends for their day-to-day expenses.
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When determining which companies are the biggest dividend-paying companies, the right way to determine is to look at two ratios: dividend yield and dividend payment ratio.
Dividend yield: It is a financial ratio that shows how much dividend a company pays to its shareholders every year in relation to its stock price. Expressed as a percentage, it is a dynamic figure as the price of stock changes every day. The formula to calculate dividend yield is to simply divide the dividend paid during the year by the stock price and multiply the result by 100. Higher the yield, the better for investors.
Dividend payment ratio: It shows how much dividend a company pays to its shareholders in relation to the net income the company generates. It is also expressed as a percentage. It can be calculated by dividing the dividend paid during the period by the net income during the considered period. The higher the dividend payment ratio, the more a company is paying its shareholders.
Below are some of the highest dividend-paying companies in the Indian stock market after applying the following filters: dividend yield of more than 2 per cent; dividend payment ratio of more than 30 per cent. There are more filters such as a market cap higher than Rs 5,000 crore, regular dividend payment in the last five years, good profit growth, etc. to filter the wheat from the chaff.
REC Limited
REC Limited is a majority government-owned company. It falls under the Ministry of Power and is involved in financing projects in the complete power sector value chain from generation to distribution. The company’s dividend yield comes in at 9.97 per cent with payout ratio of 30 per cent.
National Aluminium Company Limited
Also known as NALCO, the company manufactures and sells alumina and aluminium. The company is known for being the most cost-efficient producer of metallurgical-grade alumina and Bauxite globally. The company operates an Alumina refinery plant located at Koraput in Odisha and an Aluminium smelter at Angul, Odisha. The company’s dividend yield comes in at 7.90 per cent with the payout ratio of 40 per cent.
Housing & Urban Development Corporation Limited
Known as HUDCO, the company’s primary business is to finance housing and urban development activities in the country. The company comes under the Ministry of Housing and Urban Affairs. It is also among the top dividend-paying companies with a dividend yield of 7.65 per cent and a dividend payout ratio of about 41 per cent.
Coal India Limited
The company is the largest coal mining company in India and operates a number of coal mines and coal washeries. The company supplies its products to domestic power, steel, cement and fertiliser companies. Its dividend yield is 7.64 per cent and its payout ratio is at 60 per cent.
GAIL (India) Limited
It is an integrated natural gas company in India that owns over 11,000 kilometres of pipelines, over 2,000 kilometres of LPG pipelines, six LPG processing units and a petrochemical facility. Its dividend yield is 6.72 per cent and its payout ratio is at 36 per cent.
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