Dividend yield versus Dividend payout ratio.
In this post I will list some of the best stocks in india which have highest dividend payout ratio. Whenever a company earns profit, it distributes part of the profit as dividend to stock holders.
The amount of dividend paid out by the company is best measured by "
Dividend Payout Ratio" which is defined as the ratio of
dividend distributed by the company to PAT - the total profit earned (after tax). Companies with a dividend payout ratio of over 50% can be considered as those who distribute the dividend generously.
However, there is an alternative way of measuring how much dividend you get on a stock - called the "
Dividend Yield". This is nothing but the amount of dividend you get per stock divided by the price you pay. Note that dividend yield changes as the price of the stock changes. A dividend yield of a stock can be high, either because the company has a high dividend payout ratio, or simply because its price is very low.
Best Dividend Paying stocks with highest dividend yield
In any case, if what matters to you is how much dividend you get per amount of money invested, then
you should look at 'Dividend yield'. Here are some good stocks which have good dividend yields as of July 2010. I have also made sure that the stocks have some good fundamentals like ROE of 15%+, high interest cover, and good future prospects.
Dividend yields, at the time of writing this post (july 2010). I will update this list every quarter.
My personal choice (also considering the future growth prospects of the company, and not just dividend yield)
- Graphite India
- Tamil Nadu Newsprint and Paper ltd.
- NIIT Technologies (this stock will be risky if debt crisis in Europe worsens).
List of best, highest dividend paying stocks in India with not just highest dividend payout ratio, but strong fundamentals
As mentioned above, Dividend yield is price dependent, and you must check the latest price to get correct idea of dividend yield in the above list. However, a dividend payout ratio is something which is price independent and reflects the policy of the company in paying dividends. Below is a list of stocks with high dividend payout ratio.
In compiling the list below, I have not just focused on the dividend payout ratio, but also on other key financial ratios which ensure that the company is sound and safe, and has good growth prospects. Here are some of the factors that have been considered.
- Dividend payout ratio of at least 30%. This is the ratio of dividend distributed by the company to the total amount of profit after tax earned.
- Market capitalization of 500 crore+
- Interest cover of 3 or above.
- ROE of 15% or above.
- Qualitative factors which focus on future growth and prospects for the company.
So here is the list. I think these stocks really make a good investment option.
Typically, well established FMCG companies top the list of high dividend paying stocks, as can be seen in the list below. However the list of good dividend paying stocks mentioned below also includes companies from other sectors like Pharma, IT, consumer durables, Power/Energy, etc.
- Hindustan Unilever (HUL) - This is the biggest FMCG company in India. It has a dividend pay out ratio of about 65% - 85% ! one of the highest in the industry. Other positives for this stock include - less sensitive to economic downturns, low debt, highest ROE (over 120% - indicating a highly efficient business model), and decent growth. However, note that recently HUL has been losing market share to Godrej Consumer Products, especially in rural areas. So although I wouldn't put all my money on this stock, this is definitely a stock you want to have in your portfolio if you are focusing on dividend.
- Tata tea - Again, one of the good FMCG stocks to have in your portfolio. Dividend payout ratio of over 75%.
- Castrol India - This is a debt free company with a dividend payout ratio of over 75% on average. Other attractive numbers - ROE of over 70%, almost debt free. The company has been growing at modest pace of 10% in the past 3 years (due to recession), however bottom line has grown by over 30%.
- Nestle India - Again, a good FMCG stock with average dividend payout ratio of over 70%.
- Godrej Consumer Products Limited (GPCL) - Godrej has better growth prospects than Hindustan Unilever, I think. It is also a good dividend paying stock, with dividend payout ratio of over 65%.
- ITC - Indian Tobacco Company - average dividend payout ratio of about 65%, in 2009, it was 94%!.
- Glaxo Smithkline Pharma (GLAXO) - a good pharmaceutical company, with dividend payout ratio of over 60%. I had mentioned this stock in the list of best stocks to invest in 2009, and it has indeed given over 2 times the index returns.
- HCL Technologies - A good IT stock. Dividend payout ratio of over 60%. However, note that IT stocks are in general vulnerable to slowdown in Europe, US.
- Clariant Chemicals - This is also a good value stock. Dividend payout ratio of over 60%.
- Alstom Projects India - This is one stock I am planning to put my money on, not just for its high dividend payout ratio of 35%-40%, but also because this is one company which is going to benefit by the possible 'nuclear energy boom' in the country. With the Indo-US nuclear deal passed, India will see lot of investments in building Nuclear reactors. Alstom is one (of the several other) players to be benefited by this.
- CRISIL - Crisil is the leading credit rating agency in India with a market share of over 60%. Crisil has a dividend payout ratio of around 45%. Must have stock in your portfolio.
- Blue Star - Blue star is the market leader in India in commercial air conditioner business. It has a dividend payout ratio of over 35% and a highly efficient business model with ROE of nearly 50%. Moreover, with increasing summer temperatures throughout india, Air conditioners is something you can bet a portion of your money on.
The above is not an analysis or recommendation to buy the stocks, but it is certainly a good list from which you can pick your 'best dividend paying stocks'. I myself own several of the above stocks. Especially the last 3 stocks in the list are not exactly 'best dividend paying', but they are good dividend paying stocks which have one of the best growth prospects.
