Best Dividend Stocks in India to Buy in 2024

In this article, we will cover

• What are dividend-paying stocks?
• List of Best Dividend Stocks to buy
• Things to consider for choosing a profitable dividend stocks to buy
• Detailed profile, pros and cons of stocks in the model portfolio
• Model Portfolio
• A detailed table with various parameters for Best Dividend Stocks to buy

If you’re searching for the stock market on the internet then probably you’re ahead of 96% Indians the reason being that only 4% of Indians invest in the stock market. If you’re are searching for what is dividend, dividend yield or highest dividend-paying stocks or best dividend stocks to buy in Indian Market then you’re again in a better position compared other types of investors and traders in the market.

What are dividend-paying stocks?

Dividend stocks are companies that pay out regular dividends. Dividend stocks are usually well-established companies with a track record of distributing earnings back to shareholders. A dividend can be described as a reward that publicly-listed companies extend to their shareholders, and its source is the company’s net profit. Such rewards can either be in the form of cash, cash equivalent, shares, etc. and are mostly paid from the remaining share of profit once essential expenses are met. However, companies may decide to retain their accumulated profits to reinvest in the business or reserve it for future use. 

Dividend investing is a strategy that gives investors two sources of potential profit: one, the predictable income from regular dividend payments, and two, capital appreciation over time. Buying dividend stocks can be a great approach for investors looking to generate income or those simply looking to build wealth by reinvesting dividend payments. This strategy can also be appealing for investors looking for lower risk. Stocks that pay dividends can be some of the safest to own. But there can still be pitfalls, and dividend stocks can be risky if you don't know what to avoid. Not every dividend stock can maintain a payout in every economic environment -- something the COVID-19 pandemic has demonstrated -- but a diversified portfolio of dividend stocks can get you a steady income. 

List of Best Dividend Stocks to buy

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Watch our video on how to analyse and pick Highest Dividend-paying Stocks

Things to consider for choosing a profitable and Best dividend stocks to buy

1) Minimum Dividend Payout ratio of 40%

The company should at least have a dividend payout ratio of 40%. The dividend payout ratio is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage.  Some companies pay out all their earnings to shareholders, while some only pay out a portion of their earnings. If a company pays out some of its earnings as dividends, the remaining portion is retained by the business. Several considerations go into interpreting the dividend payout ratio, most importantly the company's level of maturity. A new, growth-oriented company that aims to expand, develop new products, and move into new markets would be expected to reinvest most or all of its earnings and could be forgiven for having a low or even zero payout ratio.

2) Dividend yield more than 3%

Overall dividend yield should be above 3%. The dividend yield, expressed as a percentage, is a financial ratio (dividend/price) that shows how much a company pays out in dividends each year relative to its stock price. It's important for investors to keep in mind that higher dividend yields do not always indicate attractive investment opportunities because the dividend yield of a stock may be elevated as the result of a declining stock price. 

3) Clear cut dividend policy

The company should have a fair track record when it comes to offering dividends and paying off debts. A firm’s dividend policy has the effect of dividing its net earnings into two parts: retained earnings and dividends. The retained earnings provide funds to finance the firm’s long-term growth. Dividend policy of the firm, thus, affects both the long-term financing and the wealth of shareholders. As a result, the firm’s decision to pay dividends may be shaped as a long-term financing decision and as a wealth maximisation decision. Stability or regularity of dividends is considered as a desirable policy by the management of most companies. Shareholders also generally favour this policy and value stable dividends higher than the fluctuating ones.

Detailed profile, pros and cons of Dividend stocks in the model portfolio

Bajaj Auto

Bajaj Auto is a two-wheeler manufacturer that has proven itself over the years. What differentiates Bajaj Auto from other two-wheeler makers in India is its relentless focus on International footprints. The company has managed to de-risk its business by not being over reliant on any one geography or product. Bajaj Auto is ranked as the world’s fourth-largest three and two-wheeler manufacturer. The company is by far India’s largest motorcycle and three-wheeler exporter. The automaker also continues to dominate the three-wheeler segment and remains the market leader. The Company’s growth and presence in the domestic and international markets have been on the back of its own brands as well its alliance with KTM. Bajaj has also entered the Electric two-wheeler space with its launch of the iconic ‘Chetak’ which could be a growth trigger over a long term. The government continued to support the adoption of electric vehicles in India and has increased the demand incentive for electric two-wheelers in its revised FAME II scheme which is set to benefit Bajaj Auto.

In FY24, the company achieved the highest-ever Revenue, EBITDA, and PAT amidst a challenging operating context. The automaker’s revenues have grown at a CAGR of 7% over the last 3 years whereas profit after tax has grown at a CAGR of 4% over the same period.  The company has superior return ratios with ROCE of 27% and ROE of 21%. Apart from all this, the company is a high dividend paying stock with a payout ratio of 65% and provides a dividend yield of 3.5%. However, the company operates in a highly cyclical industry i.e. sales are higher in periods of economic boom while sales usually suffer during economic downturns.

Castrol India Ltd

Castrol India Ltd is principally engaged in the business of manufacturing & marketing of automotive and industrial lubricants and related services. The company manufactures and sells various kinds of oil lubricants and other fluids for cars, motorcycles, commercial vehicles, industrial use, energy sector, marine and IT cooling and data centre. Castrol has a 39% market share in the cars segment, a 27% market share in the motorcycle and 21% in the commercial vehicle segment. Recently, Castrol India announced Shah Rukh Khan as its brand ambassador, embodying its commitment to innovation and excellence.

The company has a strong balance sheet with a comfortable debt-to-equity ratio of 0.04. On the dividends front, the company has a dividend payout ratio of 86% and a superior dividend yield currently at nearly 4% justifies including Castrol India in our model portfolio, making it a great dividend stock. As the company follows a calendar year financial reporting, it reported its highest-ever revenues and profits in 2023 with a strong growth profile. On the other hand, it is exposed to base oil price risk.  Also, another risk would be the inability of the company to pass on higher prices.

Hindustan Zinc

Hindustan Zinc is the world’s 2^nd largest integrated Zinc producer and 3^rd largest Silver producer globally. The company’s fully integrated zinc operations currently hold around 75% market share in India’s primary zinc industry. The company is aggressively expanding its mining capacities, implementing with six ongoing major mining projects and operates all these mines through underground mining process. Furthermore, high entry barriers, such as capital-intensive operations and lack of zinc ore mines, lend a significant competitive edge to the business risk profile. Presence in global markets also enhances its revenue diversity. High operating efficiency is driven by significant backward integration and low-cost, high-grade zinc reserves. Its operations are integrated across the entire value chain. The firm has been maintaining a portfolio of mines with long life. With access to the bulk of lead-zinc deposits in Rajasthan through long-term agreements with the Government of India (GoI), the company should be able to sustain as a low-cost producer of zinc over the medium term.  

The financial risk profile is supported by a large net worth and strong liquidity surplus. As on March 31, 2024, the company had a robust cash flow from operations generating Rs 13k Cr attributable to strong EBITDA & working capital release. The firm has reduced its Debt/Equity to 0.94x in FY23. On the other hand, Hindustan zinc is exposed to cyclicality in the galvanized steel sector. Demand for zinc is closely linked to the galvanized steel industry, which consumes around 70% of the zinc produced in India. Zinc also faces competition from substitutes like aluminium and other alloys for galvanized steel. The company also faces high concentration risk in its business profile as around 85% of revenue comes from zinc lead business.

SJVN

SJVN is a mini ratna company promoted by the GoI (55%) and the GoHP (26.85%); the balance stake in the entity is held by the public. SJVN aims to be a 25000 MW company by 2030 and a 50000 MW company by 2040. Presently, the total portfolio of SJVN is 2,227 MW. The capacity of of 5097 MW identified by MoP, GoI in Dibang basin of Arunachal Pradesh and Pumped Storage projects of 12790 MW capacity are under allotment. The GoI and GoHP have demonstrated their support for SJVN through equity contributions in the past. In addition, SJVN was able to secure project debt funding from the World Bank at a cost-competitive rate on account of it being a GoI entity. SJVN has a cost-plus tariff structure for both operational and under construction projects which ensures recovery of fixed charges for debt servicing as well as earning regulated returns.

Currently, SJVN has an impressive dividend payout ratio of 51% and provides an impressive dividend yield of more than 5%. With a strong net cash balance, SJVN investors may not have much to worry about in the near term from a dividend perspective. Sizeable under-construction capacity exposes SJVN to significant project execution risks (completion within budgeted time and cost estimates). These risks, however, are mitigated by the experience of SJVN in developing similar projects.  SJVN is exposed to the risk of delayed payments from utilities with weak financials. This is mitigated through its competitive cost of generated power, which has resulted in relatively lower debtor days for SJVN compared to other Central Public Sector Undertakings operating in this space.

ITC ltd

ITC ltd. which was earlier known as Imperial Tobacco Company, started as a cigarettes manufacturing company with brands like Goldflake, Flake, Classic under its banner. It has expanded into education and stationery products, hospitality, paperboards and packaging, among others. The acquisition of Sunrise Foods Pvt Ltd has helped it to strengthen its market position in the spices segment. A strong brand, a wide product portfolio, an established distribution network, and robust research and development capability have enabled the company to consolidate its position as the leader in the Indian cigarettes market. The strong brand loyalty of cigarette smokers is reflected in the sustained market share and profitability over the years, notwithstanding the increase in duties.

Healthy internal cash accrual, low debt, and robust liquidity have strengthened the financial risk profile. ITC has an operating margin of around 36%. The company has zero debt, against a large tangible net worth of over Rs 69,000 crore. Over the past 10 years the company has maintained a dividend payout of over 50%. The dividend payout has been more than 100% in the last year, with the dividend yield at 4.04%. Its dividend track record has been high and consistent making it a very good dividend bet. On the negative front, the company faces regulatory risks in the cigarette business including increase in taxes, and there are competitive pressures in the FMCG segment. These risks are partially offset by the focus on building cost efficiency, and strong backward integration in various businesses.

You must reinvest dividends in the same stock. In this video, our Chief Markets Editor Apurva Sheth explains why reinvesting the dividend is so important. This video is extremely popular with our viewers on YouTube. Do watch it without fail.

On the negative front, the company faces regulatory risks in the cigarette business including increase in taxes, and there are competitive pressures in the FMCG segment. These risks are partially offset by the focus on building cost efficiency, and strong backward integration in various businesses If you're a dividend investor, you can't just pick the stocks with the highest dividends. That may seem counterintuitive, but there is often a reason why companies pay out high dividends. There could be problems with the underlying business, or the dividend payout ratio is much too high and threatens future growth. The firm may have a debt-to-equity ratio that makes investors believe the company can't survive in the long run.

Watch our video on how to analyse and pick Highest-Dividend paying stocks in India for investments

Model Portfolio

In order to get exposure to Best Dividend Stocks, you would need a total of Rs. 27,433 for the below-curated portfolio as of 13^th May, 2024.

A detailed table with various parameters for Best Dividend Stocks in India to buy

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