Here are top 10 stocks with highest average dividend yield for past 5 years

India Inc pays the highest dividend in the last quarter of a financial year. With less than three weeks for this fiscal year to end, a slew of companies are expected to dole out dividends to investors. Amid weakness in the secondary market, it could be a prudent strategy to invest in stocks that are high-dividend yielding.

Domestic brokerage Centrum has screened top 10 stocks with the highest average dividend yield for the past five years (see table). The list is dominated by public sector undertakings (PSUs).

“Investors can consider some of the high-dividend yield stocks to bring in regular inflows. PSUs have been high dividend payers to address the fiscal deficit of the government to balance the tax collection shortfalls,” says a note by Centrum.

Top 10 stocks

Coal India, IL&FS Investment and NMDC have average dividend yield of 7.3 per cent, 6.9 per cent and 5.9 per cent, respectively. The yield is attractive given the drop in interest rates on fixed deposits (FDs), paid by banks, to below 7 per cent. Importantly, the interest earned on FDs is taxed, while dividend income —up to Rs 1 million a year —is tax-free. “Post-tax dividend yields of some of the stocks are way higher than the post-tax interest yield on fixed deposits. Some of the stocks, such as Coal India, have seen huge dividend pay-outs over the years. Fourth quarter of the financial year traditionally provides maximum activity in terms of PSU dividends,” says Centrum.

The brokerage says PSUs will continue to pay high dividends as the government is staring at a shortfall in revenues due to drop in dividend payment by the Reserve Bank of India. “So, dividend catch-up may be needed from other profit-making PSUs. With market correction in the past 10 days, the stock prices of some of these PSUs have seen rough treatment, resulting in a possibility of healthy dividend yields,” adds Centrum. But, unlike FDs, equities carry risk of capital erosion, which investors should note.