Companies define dividend stocks as shares that provide a portion of their profits to their investors. Shareholders get regular payments as a reward for holding onto the stock. These payments are called dividends.
Companies offer dividends because they want to attract investors looking for a steady income source in addition to potential stock price growth. Investors looking for a more stable investment strategy can choose dividend stocks for passive income.
People often choose dividend stocks based on the company’s history of paying dividends, the dividend yield (the annual dividend payment divided by the stock price), and the company’s financial status and stability.
You can choose dividend stocks for passive income, but not all companies pay dividends. Some companies reinvest all their profits into the business for growth. They may not offer dividends to shareholders. Dividend stocks attract investors seeking income alongside potential long-term growth from their investments.
Why you should invest in high-dividend stocks?
Now you might be thinking why consider dividend stocks? What benefits will I get from these shares? We have answers to all your questions. Read further to know more.
- Regular Income: You get a regular source of income through dividend payments. This is helpful for those seeking supine income. Retirees can also invest in dividend stocks for passive income.
- Growth potential: Some high dividend-paying stocks also offer the potential for stock price increases. This provides a dual benefit of capital growth as well as income.
- Stability: Companies paying high dividends often have a stable financial history. They remain relatively inert to fluctuations in stock prices.
- Diversifies portfolio: Including high dividend-paying stocks in a portfolio can diversify income sources, reducing overall investment risk and providing more consistent returns.
- Inflation Hedge: Dividend payments often keep pace with inflation, helping to maintain purchasing power over the long term.
Important ratios to consider before investing in Dividend stocks
It is important to analyze several ratios before making an investment decision. This gives the idea of the company’s potential, growth, and ability to sustain over time. Let’s have a look at some key ratios:
- Dividend Yield: It is the amount of money a company offers to its investors for owning a stock divided by its current stock price. It is represented as a percentage. Dividend yield gives the idea of the income you can generate relative to the price you pay for stock. Utility and consumer staple industries usually have high dividend yields. However, a higher yield isn’t always beneficial as it has a high risk of falling stock prices.
- Payout ratio: It is the amount of earnings a company gives to its stockholders in the form of dividends. It is represented as a percent of the company’s total profit earnings. A low payout ratio indicates that a company can increase dividends in the future.
- Return on equity (ROE): ROE indicates a company’s financial performance. It can be calculated by dividing net income by stockholders’ equity. ROE suggests how well a company manages shareholders’ equity to make profits. A company with sustainable dividends has a higher ROE.
List of Top Dividend Stocks for passive income
1) Vedanta
Vedanta Limited was established in 1979. Its headquarters are in Mumbai, Maharashtra (India). It is a multinational mining industry. It is involved in mining iron, gold, and aluminum ores. Its products are crude oil, zinc, iron ore, copper, aluminum, and electric power.
In 2023, It crossed a revenue of more than 1,50,000 Crore. The company has a market capitalization of more than 1,65,000 Crore. It has delivered ROE of ROE of around 10%. FIIs and Mutual Funds have increased their holdings in FY-2023. In March 2024, Vedanta declared an equity dividend of 2950% of Rs. 29.5 per share which results in a dividend yield of 6.42%.
2) Coal India
Coal India was founded in 1975. Its headquarters are in Kolkata, West Bengal (India). The company is under the ownership of the Ministry of Coal, Government of India. The largest government-owned company in the world, Coal India, produces coal.
It has various coal mines across India. The company has coal washeries, a low-temperature carbonization plant, and several subsidiaries. Coal India also has other establishments such as hospitals, training institutes, workshops, mine rescue setups, etc. The company has 322 mines.
Coal India has given massively 236% returns in the last three years. The Indian government has around 64% holding in this PSU. It has delivered an ROE of around 45%. In March 2024 coal India declared an equity dividend of 255% amounting to Rs. 25.5 per share which results in a dividend yield of 5.12%. The company has great dividend records and has given consistent dividends for the last 5 years.
3) PFC
Power Finance Corporation (PFC) was incorporated in 1986. It is based in New Delhi, India. The industry is under the ownership of the Ministry of Power, Government of India. PFC is the financial backbone of the Indian power sector.
This industry deals in financial services. It provides financial assistance to power projects across India. It has also started to finance fuel transportation, coal mine development, oil and gas pipelines, etc. Mutual Funds and FIIs have increased their holding in PFC for the last five years. Indian Government holds around 55% stakes in this power company. PFC has massively given 464% returns in the last three years.
In March 2024, PFC declared an equity dividend of 110% which is Rs 11 per share. With the current price, it results in a dividend yield of around 2%. It has a great dividend track record and the company has been providing dividends for the last five years.
4) NTPC
NTPC Limited was formerly known as National Thermal Power Corporation. It was founded in 1975. The company has its headquarters in New Delhi, India. It is owned by the Ministry of Power, Government of India.
NTPC generates electricity. It is engaged in generating and distributing electricity to states in India. It also provides consultancy and turnkey projects involving engineering, construction, project management, operation, and management of power plants. NTPC operates a total of 89 power stations in India.
NTPC has delivered around 220% returns in the last three years. Along with these huge returns, it has declared an equity dividend of 77.50% which is Rs 7.75 per share. With the current price, it results in a dividend yield of around 2.01%. It is one of the best power sector and dividend stocks for passive income.
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5) HCL
HCL Technologies Limited is an Indian multinational IT firm based in Noida (India). It was founded in 1976 by Shiv Nadar. The company operates in 60 countries worldwide. HCL is one of the greatest IT companies in the world.
The company provides information technology services, consulting, and outsourcing. Its products are HCL Notes/Domino, HCL AppScan, HCL Connections, Actian, WebSphere portal, Ingres, etc. The company provides its services and products in three business segments: IT, Research and Development(R&D), and Digital transformation services.
FIIs and DIIs are heavily Invested in HCL. It has given around 203% returns in the last five years. In March 2024, HCL declared an equity dividend of 2600% which is Rs 52 per share. With the current price, it results in a dividend yield of around 3.31%. HCL can be considered the best dividend stock for passive income in the IT sector.
6) REC
REC was established in 1969. The headquarters are in New Delhi, India. It comes under the Ministry of Power, Government of India. REC has offices in 22 regions in India.
The company finances and promotes power projects in India. It provides financial assistance to central/state power utilities, state electricity boards, NGOs, power cooperatives, rural electric cooperatives, and private power developers. It is listed as the 12th Maharatna company by the Indian Government.
REC has made its investors rich by delivering 470% returns in the last three years. A huge rally has been seen in the company for the last 1 year. In March 2024, REC declared an equity dividend of 160% which is Rs 16 per share. With the current price, it results in a dividend yield of around 2.52%.
7) Hindustan Zinc
Hindustan Zinc Limited is an Indian company based in Udaipur, Rajasthan (India). It was founded in 1966. Hindustan Zinc is a subsidiary of Vedanta Limited. It is the second-largest zinc producer in the world.
HZL is the mining and resource producer of Zinc, silver, lead, and cadmium. The company operates zinc and lead smelters. It operates the third-largest open pit mine in the world. It has rallied around 102% in the last year. In March 2024, Hindustan Zinc declared an equity dividend of 650% which is Rs 13 per share. With the current price, it results in a dividend yield of around 1.97%
8) ONGC
The Oil and Natural Gas Corporation Limited (ONGC) is an Indian company based in Delhi, India. It was incorporated in 1956. The corporation is owned by the Ministry of Petroleum and Natural Gas, Government of India. It is the country’s largest government-owned oil and gas producer.
ONGC produces 70 percent of India’s domestic production of crude oil and 84 percent of Natural gas. The company’s production involves petroleum, petrochemicals, natural gas, LNG, lubricants, and electricity. Indian government holds around 59% stake in ONGC.
In March 2024, ONGC declared an equity dividend of 245% which is Rs 12.25 per share. With the current price, it results in a dividend yield of around 3.8%. ONGC is one of the best dividend stocks for passive income due to its strong presence in the petroleum industry.
9) Hindustan Petroleum Corporation Limited (HPCL)
HPCL is an Indian oil and natural gas industry. It is a subsidiary of ONGC (Oil and Natural Gas Corporation). The headquarters are located in Mumbai, Maharashtra (India). It is under the ownership of the Ministry of Petroleum and Natural Gas, Government of India.
The company is responsible for producing a variety of Petroleum, fuels, and specialties. The products are petrol, diesel, lubricants, LPG, aviation fuel, and emulsions. It has rallied over 80% in the last year. Indian government holds around 54% stake in HPCL. The company has revenue of more than Rs 1,00,000 crore.
At the end of FY 2024, HPCL declared an equity dividend of 315% which is around Rs 31.5 per share. With the current price, it results in a dividend yield of around 9.05%.
10) Chennai Petroleum Corporation Limited
Chennai Petroleum Corporation Limited (CPCL) is an Indian company under the Ministry of Petroleum and Natural Gas, Government of India. Its headquarters are in Chennai, India. The company was founded in 1965. CPCL is a subsidiary of Indian Oil Corporation Limited.
The company’s portfolio includes LPG, kerosene, aviation fuel, motor spirit, paraffin wax, lubricants, naphtha, several oils, and bitumen. It also produces propylene, butane, and hexane. CPCL has two refineries in Manali and Nagapattinam. Manali refinery has a capacity of 10.5 MMTPA whereas Nagapattinam refinery has around 1.0 MMTPA.
Energy stocks usually do not pay dividends but CPCL has delivered an equity dividend of 550%. With the current price, it results in a dividend yield of around 5.07%.
Conclusion
Considering dividend stocks for passive income is a great choice for regular income. Investors get steady earnings from dividend stocks. These stocks are a good way to make money without getting actively involved.
The above-listed companies are the best dividend stocks for passive income. However, you must choose your stock wisely. Consider factors like the company’s financial status, growth, and future potential. By staying updated and informed, you can benefit from dividend stocks.
In conclusion, these stocks are a reliable source of earnings that provide regular cash flow and stability. Hence, investors seeking for long-term financial goals can opt for dividend stocks for passive income over potential profit.
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