Last Updated: Jun 10, 2022 Value Broking 10 Mins 1.6K

Stocks that pay dividends are companies with a history of sharing some earnings with shareholders. Dividend stocks are usually well-established companies with a long history of paying out some of their profits to shareholders.

Companies mainly issue dividends every quarter. Dividends are generally paid in cash, but additional shares can be issued. Dividends are usually paid quarterly, but some are paid monthly or even once in a special dividend.

Generally, dividend stocks pay periodic dividends, but dividend payments are reduced when economic times are difficult. An important measure for investors to determine whether dividend payments will continue is the dividend payout ratio. Dividends divided by net income indicate how much of the company’s income is distributed as dividends to shareholders versus how much it retains to develop its business.

In situations where the ratio is above 100%, or if it is negative (meaning net income is negative), this indicates that the company is borrowing to pay dividends. In such cases, the dividends are relatively more likely to be cut.

6 Highest Dividend Paying Stocks in India

Here is the table format for India’s six highest dividend-paying stocks:

Company NameIndustry
1Britannia IndustriesFood
2Balkrishna IndustriesTire Manufacturing
3Punjab National BankBanking
4Dalmia BharatConglomerate
5Polycab IndiaFMEG

Factors to consider before investing in dividend-paying stocks:

Dividend Yield: Assess the dividend yield, the ratio of dividends paid per share to the stock’s price. Higher yields indicate better returns.
Dividend History: Analyze the company’s track record of consistent dividend payments and whether the dividends have increased over time.
Financial Health: Evaluate the company’s financial stability, profitability, and cash flow to ensure it can sustain dividend payments.
Industry and Market Conditions: Consider the industry the company operates in and its growth potential. Also, assess the overall market conditions and economic outlook.
Company Performance: Study the company’s earnings growth, revenue trends, and prospects to gauge its ability to generate profits and sustain dividend payments.
Dividend Policy: Understand the company’s dividend policy, including the frequency and stability of payments, as some companies may pay dividends quarterly, annually, or irregularly.

Dividend Yield

High dividend stocks by yield are estimates of returns from stocks if they only receive dividends. If the dividend is not increased or lowered, the yield will rise when the stock price falls. And vice versa, if the stock price rises, the yield will fall. When a stock price goes down quickly, dividend yields can often appear unusually high because they change with the stock price.

The average dividend paid by new companies in the same sectors will be lower than mature companies, which will pay you a higher dividend yield. In general, mature companies that aren’t growing will pay you a higher dividend yield. The highest yields are paid by non-cyclical consumer stocks that deal in staples or utilities.

Price Implications

When a dividend is paid, many things are likely to happen, including price changes on the securities and other items linked to them. Dividends increase the number of shares outstanding; it increases shareholders total number of shares held by all its shareholders. It, in turn, dilutes the book value per share to keep the company’s value stable. Hence the exchange adjusts the stock price depending on the dividend declared on the ex-dividend date. It results in a fall in the stock price. For most dividends, this adjustment does not usually occur amid the ups and downs of regular trading.

Companies Implications

For corporations, dividend payments, whether cash or stock, reduce retained earnings by the total dividend amount. If a cash dividend is paid, the funds are transferred to a liability account known as dividends payable. It is removed when the company pays the dividend on the dividend payment date, usually a few weeks after the ex-dividend date.

What Are Dividends?

The board of directors of a dividend-paying company determines how much of the company’s earnings should be distributed to a class of shareholders. Common shareholders are usually entitled to receive a dividend if they own the stock before it becomes exempt from taxes.

A company issues a dividend to its shareholders as a form of payment. While cash dividends are most common, dividends are also issued in stock or other property shares. As well as companies, various mutual funds and ETFs may also pay dividends.

Companies issue dividends either monthly, quarterly, or annually. The board of directors also gives dividends over different periods and at different rates. Therefore, dividends impact share prices, which can rise by approximately the amount of the dividend declared at the announcement and then decline to a similar level at the opening session of the ex-dividend date. In addition, due to the irreversibility of dividend payments, their payments cause money to be permanently removed from a company’s books.

Investors can interpret companies’ dividend payments in various ways depending on the reasons for dividend payments. As a reward for their loyalty to a company, shareholders should expect dividends. The company management can seek to honor this sentiment through a robust dividend payment history.

What is the Dividend Payout Ratio?

This ratio represents the proportion of dividends paid out to shareholders as a percentage of the company’s net income. The dividend payout ratio is the percentage of earnings distributed to shareholders via dividends.

It can be referred to as simply the payout ratio, which is often used to describe the amount that was not paid to shareholders or used to pay off debt.

To calculate the dividend Payout Ratio, one divides the dividend per share by the EPS. Likewise, one can also calculate it by dividing the total dividend issued by the net income.

The Dividend Payout Ratio = the Net Income /the Dividends Paid.

​Dividend payout ratios are interpreted based on several factors, most notably the company’s maturity. Businesses growing, developing new products, and expanding into new markets are forgiven for having a low or zero payout ratio. However, they are expected to reinvest most or all of their earnings.

When a company does not pay dividends, the payout rate is 0%, whereas it is 100% when it pays out its entire net income as dividends.

Even if the market crashes or a particular event falls, thus, they are less risky than other growth stocks. When dividend stocks are added to a portfolio, they help diversify the portfolio’s risk potential. The best thing about dividend stocks is that they gain back their value during harsh market conditions.

If investors receive dividend payouts, they can use the money for personal purposes or reinvest it in the same stock. Reinvesting dividend payouts in the stock market helps investors boost returns.

An investor can achieve inflation-proof investment through dividend stocks, especially dividend growth stocks. Since the inflation rate increases day by day and is making an upward trend, it’s essential to make effective and inflation-proof investments.

With dividend stocks, investors can focus their attention on other aspects of the stock market instead of tracking stock movements.

Risks of Investing in High-Dividend Stocks

In general, income investors invest in bonds but are forced to consider other investments such as dividend-paying stocks when bond yields are low. Dividend-paying stocks come in two main types: preferred stock and dividend-paying common stock. Preferential stock dividends are usually set when the stock is priced, remains fixed, and must be paid before common stockholders receive dividends. The company’s board of directors declares dividends for its common stock, which can change or be omitted.

This type of dividend, mainly high-paying dividends, reduces shareholders’ equity because they are paid from retained earnings. Otherwise, the company would invest this money back into the business. Since the stock is trading ex-dividend, its price is adjusted to reflect the removal of the most recent dividend.

Often, the board of directors of a company is responsible for determining whether to declare a dividend and, if so, when to do so. Dividends are generally declared quarterly, biannually, or annually. If investors get bored and sell, the stock price may drop enough to harm the company. So a stable company must maintain investor interest. Its credit rating, financing, and listing on an exchange are all based on its market capitalization.

You don’t have to worry about your dividend disappearing if the company’s profits are too low or if new management will reinvest profits to spur growth. However, buying preferred stock in anticipation of dividends is risky because higher dividend payouts in preferred stock translate to lower credit quality.

Investing in preferred or dividend-paying common stocks is taxed differently depending on the political climate at the time, so check with your accountant before you invest.

Alternative Investment Options

Gold ETF

A Gold ETF tracks gold prices in the domestic market by investing in gold bullion. This passive investment instrument is based on gold prices and invests in gold bullion.

Gold ETFs are backed by physical gold on paper or in dematerialized form. Each unit of an ETF is equivalent to one gram of gold, and the physical gold is of very high purity. The National Stock Exchange of India (NSE) and Bombay Stock Exchange Limited (BSE) list and trade gold ETFs like stocks. Gold ETFs are a perfect complement to the money market and the stock market.

Sector Funds

Investment funds specializing in investing in businesses that operate in specific sectors or industries are called sector funds. Sector funds are similar to mutual funds or exchange-traded funds (ETFs).

In sector funds, companies in a particular market area are invested in, and they are known as sectors or lines of business that provide the same or similar products.
rnInvestors can invest in sector funds to take advantage of the appreciation potential of a specific industry sector, such as the financial sector or technology sector. For example, JPMorgan falls into the financial industry, while Apple belongs to the technology sector.


Dividend-paying stocks are more suitable for investors with lower risk tolerance than stocks that desire capital appreciation. Dividend yields on S&P 500 companies that pay dividends historically range between 2 and 5 percent depending on market conditions. However, it is good to do your homework on stocks that yield more than 8 percent to find out what is going on.

To conclude, individual investors are responsible for tracking and reporting investment transactions correctly, just like everything else. If you have purchased different stocks at different times with varying amounts of basis, return of capital, dividend, and stock split adjustments must be calculated separately.

The current dividend payout can be located in a company’s financial statements with the cash flow statement. In addition, you can find historical dividend payment information about the company on many stock information websites. Investing strategies and their required returns are decided by individual investors or analysts.

Investing in high dividend-paying companies does not guarantee investors a healthy profit and loss account and balance sheet. Investors should consider a company’s balance sheet and profit and loss account before deciding on the company based on its dividend payouts. To determine whether the dividends are sustainable, they should look at several other factors. Hope this article, “High Dividend Stocks,” helps you understand the meaning of high dividend stocks in detail.

Frequently Asked Questions (FAQs)

A dividend stock is a company that consistently distributes profits to its shareholders as dividends and which has a successful track record.

Dividend stocks offer investors the dual benefits of value appreciation and regular dividend income. A dividend stock, for instance, can be invested in and soaked up the benefits for quite a few years. Then, later on, the investor can sell the investment for a profit.

Dividend stocks gain value during harsh market movements. In addition, due to their capital protection ability, dividend stocks are a good option for risk investors.

No, a company doesn’t need to give dividends to investors. Dividend payments are determined by the company’s profitability, financial health, and management decisions.