Here are 10 high dividend-paying stocks from the universe of BSE500 index

The equity market appreciates high dividend paying companies and these companies share prices appreciate at a steady rate providing capital appreciation to their investors well

When it comes to investing money in equities, investors are largely focussed on maximising capital returns on their investment. But equity dividend is an equally important component of the overall gains from equities. Most of the large and well-managed companies pay equities dividend year after year and a well-constructed portfolio of high dividend-paying companies can become a good source of recurring income for the investor. Equity dividend payout by companies keeps pace with the growth in their earnings and it even grows faster than their earnings growth during the boom times.

For example, in the last three years, dividend payout by listed companies grew at a compounded annual growth rate (CAGR) of 18.3 per cent. The total payout by the top 1,219 listed companies that are part of BSE500, BSE Mid-Cap and BSE Small-Cap indices jumped from Rs 2.61 trillion in FY21 to Rs 4.33 trillion in FY24. The overall payout by companies to their shareholders is much higher if large share buybacks by big cash-rich companies, such as Tata Consultancy Services, Wipro, Larsen & Toubro and Bajaj Auto, among others, are taken into consideration.

The equity market prefers high dividend-paying companies and these companies’ share prices appreciate at a steady rate, providing good capital appreciation to their investors. So, a high dividend-paying company provides the best of both worlds for their investors — a year-on-year (Y-o-Y) appreciation in their capital and recurring annual income in the form of equity dividend.

Granted, the dividend yield in the broader market is quite low with the benchmark Sensex offering a yield of 1.14 per cent currently. But there are many high-quality stocks with dividend yield of 2.5 per cent and even higher. Some are offering yield of up to 5 per cent at their current stock price.

Here are ten stocks from the universe of BSE500 index that offer the best combination of a significantly high dividend yield, strong revenue and growth, high return on equity and a strong balance sheet with a very low debt to equity ratio. We have only selected stocks with dividend yield of at least 2.5 per cent based on their current price and full-year dividend paid in FY24. The other condition of choosing them was their return on equity should be at least 15 per cent on average in the last three years. The companies, whom these stocks belonged, were also screened for net sales, PBIDT (profit before interest, depreciation and tax), and net profit growth in the same period.

Great Eastern Shipping Company Ltd

> Great Eastern Shipping Company Ltd is the most profitable firm in its industry with a debt free balance sheet

> The firm saw a surge in revenues and profit post-Covid in line with a recovery in global trade and rise in freight rates

> Its net sales and net profit grew at a CAGR of 16.3 per cent  and 41.7 per cent, respectively between FY21 and FY24

> The firm is using the surge in cash inflows to deleverage its balance sheet, acquire new ships besides paying higher dividends to its shareholders

> Dividend pay-out by GE Shipping is up 5 times since FY21 and the stock offers a dividend yield of 3.2 per cent

> The shipping company faces growth challenges in the short-run with a decline in freight rate and slowdown in foreign trade but its low valuation with a P/E of 9.4X offers downside protection to investors

Coal India

> The public sector Coal India is one of the biggest dividend payers in the country and offers one the highest dividend yield among top companies at 5 per cent currently

> The company gained handsomely from a surge in coal demand and prices in the post-Covid period

> In the last three years, its net sales and net profit grew at a CAGR of 16.4 per cent and 43.3 per cent, respectively

> The company reported a sharp deceleration in revenue growth in the H2FY24 but its margin expanded thanks to a decline in wage costs

> Its net profit was up 17.8 per cent Y-o-Y in FY24 and brokerages have upgraded its FY25 earnings on higher margins

> Coal India stock price is up 122 per cent in one-year but its relatively low valuation with price-to-earnings (P/E) of 8.5X offers downside protection to investors

Hero Motocorp

> The market leader in the domestic two-wheeler sector is banking on the 125 cc and premium segments to drive its growth. Growth in the premium segment will be driven by Harley Davidson X440, Mavrick 440, and Karizma

> Hero is eyeing a double-digit revenue growth for FY25 and is aiming to maintain operating margins in the 14-16 per cent band over the medium-to-long term 

> ICICI Securities has a positive stance on the company, given expectations of higher rural spending by the government, successful product launches & forecast of normal to positive monsoon in 2024. It expects increased traction for the company's exports 

> The brokerage has built a sales volume growth of 11.5 per cent for FY25 and 10 per cent thereafter for FY26 

> The stock offers a dividend yield of 2.5 per cent currently, among the highest in the automotive space

Nippon Life India Asset Management

> Nippon Life India Asset Management Limited (NAM India) has been one the fastest growing mutual funds in recent years with market share gains in the equity segment

> According to YES Securities, NAM held double digit market share in net flows for equity and hybrid category in Q4FY24 and its equity AUM (ex-ETF) market share has also improved by 9bps Q-o-Q to 6.76 per cent

> In the last three years, the company’s net sales and net profit has grown at a CAGR of 15.7 per cent and 17.6 per cent respectively while dividend pay-out grew at a CAGR of 28.2 per cent in the period

> Brokerages expect the earnings momentum to continue, given strong inflows in its equity schemes and its cost-efficient operations

> The stock currently offers a dividend yield of 2.5 per cent and its pay-out was up 45 per cent in FY24

> Analysts at CLSA, however, see limited upside in the stock, given its expensive valuation with P/E multiple of 38X and P/B ratio of nearly 10X at its current share price

AkzoNobel

> While there are near-term competitive pressures, India’s paint industry offers robust long-term growth potential (FY24-34 annual value growth of 12 per cent), strong profitability, robust cash flows and high return on equity 

> The company’s Y-o-Y revenue growth in the March quarter of 2.3 per cent was higher than Asian Paints (-0.6 per cent) and Kansai (+2.1 per cent) which indicates it has likely gained market share in Q4FY24 

> ICICI Securities believes that steady investments in distribution expansion, innovation and higher share of premium products have led to market share gains over H2FY23-FY24 

> The company continues to introduce differentiated products with the launch of affordable acrylic distemper and two products in Industrial coatings. Valuations are reasonable which offers a margin of safety 

> The stock offers a dividend yield of 2.6 per cent currently and its pay-out has grown at a CAGR of 15.4 per cent in the last 3 years

Castrol India

> The company’s March quarter performance was below estimates given that operating profit margins declined to 22.2 per cent due to higher raw material costs and other expenses. Lack of price hikes and an unfavourable mix also hit profitability 

> The company, according to Motilal Oswal Research, will be able to maintain profitability through an improved product mix, stringent cost-control measures, and the launch of advanced products that command better realisation.

> Castrol’s asset light model has consistently led to best in class return ratios and management expects this to sustain, even when it steps up investments in new areas with a Rs 100 crore to Rs 150 crore capex per annum. 

> IIFL Research believes there is a good scope for steady earnings growth led by volumes, rather than margins alone. The pace of EV adoption is the key risk going ahead. 

> The stock offers a dividend yield of 3 per cent and its payout has grown at a CAGR of 15.4 per cent in the last 3 years

ITC

> Normal monsoons and a likely revival in rural consumption in the second half of FY25 is expected to boost the prospects of ITC’s cigarettes, fast moving consumer goods, and agri-related products 

> The biggest trigger for the stock would be any tax-related decision in the forthcoming Budget. Given the weak volume growth of legal cigarette sector and risk of higher sales of the illegal market, a rate hike is unlikely

> While prospects for most businesses are strong, the hotel business could register slower growth in Q1FY25 due to the impact of the heat wave on travel 

> While Nuvama Research has a buy rating from a long-term perspective, it believes that the ITC stock is more of a valuation comfort rather than strong earnings visibility

> The stock offers a dividend yield of 3% currently and it pay-out is expected to grow in line with its earnings in FY25

ONGC

> The public sector Oil & Natural Gas Corporation (ONGC) has seen a sharp rise in its revenues and profits in the post-Covid period

> The firm’s net sales and net profit has grown at a CAGR of 21.3 per cent and 44.5 per cent, respectively on gains from higher crude oil prices and rise in refining and marketing margins of its subsidiaries — HPCL and MRPL

> The company’s reported a decline in net sales in FY24 compared to strong double digit growth in previous 2 years but net profits were up 34.1 per cent from higher margins

> Brokerages expect ONGC to maintain its earnings momentum and Motilal Oswal Securities and JM Financial have upgraded its FY25 earnings anticipating gains from higher crude oil prices

> The stock currently offers a dividend yield of 4.1 per cent and its dividend pay-out has grown at a CAGR of 50.4 per cent in the last three years

> Its relatively low P/E multiple of 10X and high dividend yield offers high downside protection to investors

HCLTech 

> Despite seasonal softness, the firm delivered a robust performance with a beat on revenues as well as margins in Q1. HCLTech has retained a 3-5 per cent constant currency growth guidance with 18-19 margins for FY25

> Deal wins have been in line with expectations at $1.96 billion with 24 large deals, including 11 deals involving generative AI

> Sharekhan Research expects sales and net profit growth of 9.7 per cent and 14 per cent over FY24-26. It expects HCLTech to maintain growth leadership among the larger peers driven by strong domain capabilities and disciplined execution 

> According to Systematix Research, key risks are sudden exits at the leadership level, sustained pressure on client discretionary spending in FY25/FY26 and lower than expected gains from cost saving programmes 

>  HCLTech has a dividend yield of 3.4 per cent currently and its payout has grown at a CAGR of 8.3 per cent in the last 3 years

UTI Asset Management Company

> UTI Asset Management Company (UTI AMC) has been one of the top beneficiaries of the growing popularity of mutual funds in the country

> In the last three years, UTI AMC net sales and net profit have grown at a CAGR of 14.1 per cent and 15.7 per cent, respectively

>  Analysts expect its earnings momentum to continue in FY25 as well given continued strong inflows in equity mutual funds and bullishness on Dalal Street

> The company is now trying to raise its market share via new fund offerings such as UTI Balanced Advantage Fund, UTI Innovation Fund and a slew of index and ETF funds

> On the downside however, the company has lost market share in the high-margin equity space in FY24 to its bigger peers

> The stock’s relatively low P/E of 23.5X and dividend yield of 4.2 per cent offers downside protection to investors