Lets learn a few financial terms before we go into the details of the companies with highest dividend payout in the year and why I think these stocks will continue to give better dividends.
No rocket science here. But very plain and simple assumptions and opinions.
Dividend Yield
Dividend yield is a financial ratio that measures the annual dividend payment of a company relative to its stock price. It is calculated by dividing the annual dividend per share by the current market price per share.
Dividend yield is expressed as a percentage and is used to evaluate the income generated by a stock investment. A high dividend yield may indicate that a company is returning a large portion of its earnings to shareholders in the form of dividends, while a low dividend yield may suggest that a company is retaining a larger portion of its earnings for other purposes, such as reinvestment in the business.
Payout Ratio
Payout ratio is a financial metric that measures the percentage of a company's earnings that are paid out to shareholders in the form of dividends. It is calculated by dividing the total dividends paid by the net income of the company.
A high payout ratio indicates that a company is distributing a larger portion of its earnings as dividends, while a low payout ratio suggests that a company is retaining a larger portion of its earnings for other purposes such as reinvestment in the business.
The payout ratio is an important metric for income investors who rely on dividend income for their investment returns. It is also useful for analyzing a company's financial health and ability to sustain its dividend payments over time.
Analysis
My goal is find out the best companies which give good dividend annually and also continue to grow on the market price as well. Based on above 2 factors along with YOY growth trend, following are few stocks that I think are good investment options for a less risky and secure dividend and annual growth.
I have used screener free version for all my research for this article. Following is the link to verify the same.
https://www.tickertape.in/screener/equity
My filters
- Dividend Yield > 5%
- Cash Dividend Paid in current financial year > 500 Cr. INR
- 5 Year return > -10 %
Here is a google sheet based on above filtered list that Screener would show with 20 stocks.
https://docs.google.com/spreadsheets/d/1ztWuKZ4GOMk7lpYsqJYXZSEQzoxMQNv6svGdVI2DLUs/edit?usp=sharing
Going further…
I would now describe my rationale behind the choices for the following stocks.
- Any stock returning a dividend yield > 5% is actually very good in terms of annual return. In the current times where fixed deposit rates is also 7%, IMO 5% yield is a decent return even if there is no rise in the stock value.
- Any sizeable company only will be able to do a payout of 500 Cr. and above. This could have been mapped to Market Cap value also as you can see in the sheet, but since we are looking at dividend yield as a factor, chose the total amount of dividend paid by the company.
- The company should not be on a downstream trend. Hence the 5 year CAGR return. The reason why I have considered a negative factor and not positive is because there can be a recent trend reversal factor as well, where a company may not have done well in the past but is not in an upward trend. This can be determined by using 1 year return as well. Alternatively you can also look at charts for each of these companies to see market price trend.
- If a company has huge downward trend in the recent year marked by huge negative 1 year trend, those are downward trending companies. Removed them from the list by marking as red. NMDC, Vedanta and NALCO fall in this list.
- Other list marked as red would be a list of over-priced stocks with high PE ratio. Sanofi, OFSS, GLAXO and INDIGRID.
- CESC has overall negative trend. Marked red.
- Energy sector due to recent allocations in finance plan has been marked as green. They also seem to have good upward trend in past 1 year and 6 month to support the fact. OIL, IOC, ONGC & PETRONET.
- GAIL and POWERGRID also kind of show a good overall trend and also are energy related segments. Hence marked them green.
- Marked SAIL and HINDZINC green due to good upward trend in last 6 months and almost flat 5 year return.
- All other seems to be doing pretty well and no specific reason to not mark them green.
With above, here is the final list of stocks that I would go long on for high dividend return.
Dated: Mar 5, 2023
Stock | Close Price | Dividend Yield | 1 Year return | 5 Year return | PE Ratio |
Indian Oil Corporation Ltd | 78.20 | 10.52 | 2.29 | -9.26 | 4.38 |
Steel Authority of India Ltd | 87.80 | 10.14 | -13.20 | 1.65 | 2.91 |
REC Ltd | 118.15 | 9.91 | 28.35 | 2.08 | 3.04 |
Power Finance Corporation Ltd | 155.15 | 7.98 | 41.05 | 8.65 | 2.83 |
Coal India Ltd | 222.95 | 7.63 | 17.99 | -6.55 | 7.91 |
Oil and Natural Gas Corporation Ltd | 154.25 | 6.82 | -9.42 | -4.05 | 4.26 |
Power Grid Corporation of India Ltd | 222.10 | 6.69 | 1.95 | 8.45 | 9.14 |
GAIL (India) Ltd | 105.25 | 6.55 | -0.71 | -1.56 | 5.53 |
Hindustan Zinc Ltd | 311.75 | 5.76 | -8.42 | -0.25 | 13.71 |
Oil India Ltd | 256.45 | 5.53 | 4.55 | 1.92 | 4.97 |
SJVN Ltd | 32.50 | 5.33 | 12.07 | -1.30 | 12.67 |
Petronet LNG Ltd | 222.95 | 5.18 | 3.75 | -1.53 | 9.68 |
PS: I am not an investor in many of these and am going to start investing in some of them as per my further analysis. But this should be a good list to start off with and look at long term investing in these stocks.
Let me know if you have comments or questions around data on the above.
