In times of major correction, a dividend-yielding strategy is a good way to invest. A report by HDFC Securities pointed out that according to historical data, high dividend yield stocks tend to perform better in bear markets than other stocks.
"High dividend-paying companies are generally mature firms with fewer reinvestment needs and steady cash flows. Many dividend-paying stocks, typically, are part of defensive sectors that are likely to weather heightened volatility and economic downturn better than cyclical sectors," the report added.
Dividend stocks are those that make quarterly or annual payouts to their shareholders, usually in the form of cash. A dividend is a percentage of a company's profit distributed to its shareholders. A company's dividend policy is often seen as a testament to its confidence in future earnings growth and sustainability of the business.
HDFC further pointed out that businesses that don’t need their profits to reinvest in their business and return them to shareholders in line with a clear pay-out policy seem to be safe-haven stocks in bearish times.
Exposure to dividend-yielding stocks should be considered for generating regular income and downside protection rather than to maximize returns, it advised investors. Investing in dividend-paying stocks is a good alternative for people who want a consistent source of income and wish to avoid stock price volatility. These stocks, when added to the portfolio, help to diversify the risk potential effectively.
HDFC Securities has compiled a list of top dividend-paying stocks. Let's take a look:
REC: The public sector firm has the highest dividend yield of 13.8 percent. Its total dividend payout for FY22 stood at 153 percent. The company has a paid-up capital worth ₹1,974.9 crore and earnings per share (EPS) of ₹50.8. In the last 1 year, the company's stock has lost 16 percent.
SAIL: SAIL is another public sector firm that offers one of the highest dividend yields, which stands at 13.5 percent. In FY22, the company's dividend payout stood at 87.5 percent. It has paid-up capital worth ₹4,130.5 crore and an EPS of ₹30.3 per share. In the last 1 year, the company's stock has lost 46 percent.
Power Finance Corporation (PFC): PFC is a power finance institution that offers a dividend yield of 12.2 percent. In FY22, PFC gave a 120 percent dividend and has a paid-up capital of ₹2,640.1 crore. Its earnings per share stood at ₹53.1. The stock declined 16 percent in the last 1 year.
PTC India: The PSU stock, which fell 28 percent in the last 1 year, offers a dividend yield of 10.4 percent to its shareholders. Its dividend payout stood at 75 percent for FY22. The power trading solutions provider has a paid-up capital of ₹296.0 crore with an EPS of ₹14.7 per share.
Coal India: The largest coal producer in the world offers a dividend yield of 9.6 percent and has paid a 170 percent dividend in FY22. The stock has a paid-up capital is around ₹6,162.7 crore with an EPS of ₹28.2 per share. It advanced over 30 percent in the last 1 year.
Housing and Urban Development Corporation (HUDCO): This PSU firm provides offers a dividend yield of 8.5 percent and paid 27.5 percent dividend to its shareholders in FY22. Its paid-up capital stands at ₹2,001.9 crore and has an EPS of ₹8.6 per share. In the last 1 year, the stock has shed over 35 percent.
PNB Gilts: The Punjab National Bank-backed company also offers a dividend yield of 8.5 percent and a dividend payout of 50 percent to its shareholders, as of FY22. Its paid-up capital is ₹180 crore and has an EPS of ₹8.9 per share. The stock fell 16 percent in the last 1 year.
Indian Oil: The OMC offers a dividend yield of 8.2 percent and has paid an 8 percent dividend to its shareholders in FY22. It has a paid-up capital of ₹9,414.2 crore and an EPS of ₹26.7 per share. In the last 1 year, the stock has added 1.5 percent.
