Dividend paying stocks are a great way to build your portfolio that will give you earnings on regular basis. You earn extra cash without selling the stock. However, you need to keep in mind that not all dividend paying stocks are generally good investment. You need to know how to separate the good ones from the trash. In this post we are going to talk about five such companies that pay a good dividend yield.
Investors curate various strategies before purchasing a stock. While there are various factors for finalizing the decision to buy a stock various individuals prefer to buy a stock based on the dividend paid by the company. This has resulted in the development of a class of stocks known as dividend paying stocks. These stocks aren’t as other financial products such as high yield bonds etc. However these stock are mostly preferred by investors expecting to earn a substantial periodic investment from their asset investments.
These stocks are reffered to as “blue chip stocks” in the market circuit. The reason for this can be attributed to the factor that these stocks have a massive history of dividend payouts. Due to this these stocks are heavily bought by various top tier financial institutions as well as mutual funds and pension funds.
While paying out dividend a company has to consider various factors. The dividends paid out by any company needs to be in tandem with the profits earned by the organization.
After earning profits it needs to be bifurcated into dividend payout and future investments in a judicious manner. The future investments of the company are very strategic because they will ensure that the company stays afloat in future and grows exponentially.
Therefore an investor should not only focus on dividend but also whether the company is investing money back into the company for future growth avenues.
GAIL
When it comes to the natural transmission sector of the market, GAIL occupies a dominant position in the market. The company currently occupies around 70% market share of the market. The market requires a heavy pipeline network and also has bureaucratic woes paired with complex regulations.
However GAIL has navigates through this complex network of regulations and positioned itself as the market leader. There is slated to be a heavy demand of natural gas from sectors such as fertilizer and City Gas distribution (CDG) projects. Apart from that GAIL is focusing on diversification of business by investing into structures for manufacturing petrochemicals as well as LPG.
If we look at the finances of the company it seems to be maintained with a mixture of assets and debts. The CAGR growth rate of the company is witnessing a rise at 30.5% on a yearly basis.
ITC Ltd.
ITC operated across tobacco business and currently has various cigarette brands under it’s banner such as Gold Flake, Classic etc. Currently the organization is expanding across products such as hospitality, stationery, education, paperboards etc. Recently ITC has done an acquisition of a spice based company which will directly affect the position of ITC in the spice segment. When it comes to the tobacco business, ITC has gained a cult following and a heavy brand loyalty.
A cursory glance at the financials of the company reveal it’s heavy financial products. It has an operating margin of 34% paired with a zero debt. Also it has a net worth of around ₹ 62,456 crore. This reveals the strong position of the market and it’s heavy dividend payouts.
NMDC
NMDC operates in the mining sector in India. Currently the company has positioned itself as one of the dominant players in the iron ore production in India. Its market capitalization is around ₹38464.2 Crore Apart from that the company also delves in various minerals such as copper, graphite, tungsten etc. and various minerals. The company has a complex pipeline based mechanism wherein they produce the mineral and manufacture it into various resources and sell it across the market. The company is a PSU and has also bagged the status of Navratna. If you look at NMDC its a basic mineral company and its unlikely for a basic minerals company to issue dividends to its customers.
Tata Steel
Tata Steel is a global market player in the steel sector. Currently it operates with manufacturing processes across 26 countries and a vast business presence across 50 countries. The dominant position of Tata Steel has been strengthened because it operates across the entire value chain from production to manufacturing of steel. The company is not saturated across steel production instead it operates across mining of various metals.
If you look across the financials of the company it has a market capitalization of ₹149,549 crore. The stock is currently priced around ₹122. The ROE for the company is around 42.6%. The dividend yield of the stock is around 4,16%. Apart from that the profit of Tata Steel is around 76.8% CAGR for a period of around 5 years. The dividend payout has been maintained at around 43.0%.
Vedanta
Vedanta operates across natural resource exploration, mining and production and manufacturing of minerals. Apart from that it also deals with gas and oil based resources. Some of the minerals the organization deals with is silver, copper, zinc and aluminium. Vedanta currently operates across countries such as India, UAE, South Africa, Namibia, Liberia. Apart from that it also operates across new businesses such as power generation, port operations or steel manufacturing. The primary revenue source of Vedanta is India which is responsible for 65% of the total revenue of the company.
If we look at the financials of the company it has a stellar increase in profit of around 28.8% CAGR for a period of five years. Currently the dividend yield of Vedanta is around 21.1%. Apart from that the dividend payout of the company is around 32.6%.
If you look at the recent financials of NMDC the company had a consolidated revenue of 3754.57 crore in the September 22 ending quarter which directly translates into a 45,44% loss in revenue on a yearly basis. The profits of NMDC were around 972.22 Crore in the same quarter which translated into a loss of 58.22%. The last dividend payout of NMDC was around 5.73 in the quarter that ended around March 22. This has positioned the dividend yield of NMDC at 17.64%.
What is the average dividend payout of these companies for a period of around 5 years
| Name of company | Average Dividend Payout (5 years) |
| GAIL | 5.85% |
| ITC LTD | 3.46% |
| NMDC | 11.43% |
| Tata Steel | 4.12% |
| Vedanta | 21.00% |
The above article lists out some of the top grossing dividend payout stocks. While these stocks are lucrative in nature sometimes investors end up incurring heavy losses on various dividend stocks. Therefore it is recommended to review and analyze each stock individually before making any investments.
What did we learn?
