Dividend stocks represent shares of companies that consistently distribute a portion of their earnings to shareholders in the form of dividends. These dividends are typically paid out on a regular schedule, often quarterly or annually. Companies that issue dividend stocks are typically mature, stable, and generate consistent profits.
10 Popular dividend stocks in India (2024)
Here are the dividend stocks in India:
Name |
Market Cap |
9,219.00 |
|
Indian Oil Corporation Ltd |
201580 |
64,163.00 |
|
256,030.00 |
|
184214 |
|
56727 |
|
326458 |
|
Great Eastern Shipping Company Ltd |
15981 |
9398 |
|
Castrol India Ltd |
22048 |
Disclaimer: The market capitalisation values mentioned above were fetched on 19th December 2024. These values are subject to change based on various factors such as market conditions, company performance, and economic trends. Please refer to the SEBI or stock exchanges' websites to obtain the most current market capitalisation for any particular stock.
Overview of the 10 popular dividend stocks in India
Chennai Petroleum Corporation Ltd
Established in 1965 as a subsidiary of Indian Oil Corporation, Chennai Petroleum Corporation Ltd (CPCL) is dedicated to refining crude oil and producing petroleum products. Operating two major refineries in Tamil Nadu, CPCL significantly contributes to India’s domestic fuel requirements.
Indian Oil Corporation Ltd
Founded in 1959, Indian Oil Corporation Ltd (IOCL) is a leading state-owned enterprise in the oil sector. It focuses on refining, marketing, and distributing petroleum products, alongside the exploration and production of crude oil and natural gas. IOCL’s expansive network and infrastructure ensure its prominent role in India’s energy security.
Bharat Petroleum Corporation Ltd
Bharat Petroleum Corporation Ltd (BPCL), established in 1952, is a key player in India’s energy sector. It specialises in refining and distributing petroleum products through its extensive network of fuel stations and refineries, serving millions nationwide.
Vedanta Ltd
Since its inception in 1976, Vedanta Ltd has emerged as one of India’s foremost natural resource companies. The firm engages in the exploration and production of resources such as oil, gas, zinc, copper, silver, and aluminium, operating across multiple countries.
Coal India Ltd
Coal India Ltd, formed in 1975, stands as the world’s largest coal producer. Functioning under the Ministry of Coal, Government of India, it plays an integral role in meeting India’s energy demands through its vast network of subsidiaries.
Hindustan Petroleum Corporation Ltd
Founded in 1974, Hindustan Petroleum Corporation Ltd (HPCL) is a significant player in the oil and gas sector. A subsidiary of ONGC, HPCL operates refineries and manages a broad network of distribution points and petrol stations across India.
Oil and Natural Gas Corporation Ltd
Oil and Natural Gas Corporation Ltd (ONGC), established in 1956, is India’s largest oil and gas exploration company. Its onshore and offshore operations cater to a substantial portion of the nation’s energy requirements.
Gujarat Pipavav Port Ltd
Incorporated in 1992, Gujarat Pipavav Port Ltd operates one of India’s first private ports, located in Gujarat. The company provides comprehensive cargo handling services for both container and bulk goods.
Great Eastern Shipping Company Ltd
Founded in 1948, The Great Eastern Shipping Company Ltd is India’s leading private shipping company. It offers services in crude oil transportation, dry bulk cargo, and offshore oilfield logistics, catering to the energy sector.
Castrol India Ltd
Castrol India Ltd, established in 1910, is a top manufacturer and distributor of automotive and industrial lubricants. Renowned for its high-performance engine oils, Castrol has a strong presence in India’s lubricant market, backed by an expansive distribution network.
What is a stock dividend?
A stock dividend refers to the issuance of additional company shares to existing shareholders. Unlike cash dividends, stock dividends do not involve a direct payout; instead, shareholders receive a proportionate increase in the number of shares they hold, without altering their ownership stake percentage.
Importance of stock dividends
Stock dividends serve as a strategic financial tool, reflecting a company’s confidence in its growth trajectory. They signal positive prospects to investors while preserving cash reserves for operational needs or expansion. By offering stock dividends, companies attract long-term investors and foster shareholder loyalty. This approach also provides flexibility for companies to reward shareholders without impacting liquidity, making stock dividends a valuable mechanism for maintaining financial health and stability.
How dividend stocks work?
When you invest in dividend stocks, you become a shareholder in a company. As a shareholder, you are entitled to a portion of the company's profits. Instead of reinvesting all their earnings back into the business, these companies distribute a portion to their shareholders as dividends. The amount you receive depends on the number of shares you own and the dividend yield of the stock.
How to invest in dividend stocks in India?
Investing in dividend stocks in the Indian stock market involves several steps:
1. Research
Start by researching companies that have a history of paying dividends consistently. Look for companies with strong financials, a competitive edge, and a history of consistent dividend payouts over time.
2. Demat and trading account
Open a Demat and trading account with a reputable stockbroking firm in India. Ensure the broker offers access to a wide range of stocks and provides research tools and resources.
3. Stock selection
Choose dividend-paying stocks that align with your investment goals and risk tolerance. Diversify your portfolio across different sectors to reduce risk.
4. Purchase stocks
Place an order to buy the chosen dividend stocks through your brokerage account. Be mindful of transaction costs and fees.
5. Monitor Investments
Keep track of your dividend stocks and monitor company performance. Reinvest dividends or withdraw them as needed.
Stock dividend formula and example
The formula for calculating stock dividends is:
Additional shares = (Stock dividend percentage / 100) × Existing shares
Example:
Suppose you own 200 shares of "ABC Ltd." priced at Rs. 100 per share. The company announces a 5% stock dividend. Using the formula:
Additional shares = (5 / 100) × 200 = 10 shares
After the stock dividend, you would own a total of 210 shares (200 original shares + 10 additional shares). However, the price per share may decrease slightly to reflect the increased number of shares in circulation while maintaining the overall market value of your investment.
Things to watch out for
While dividend stocks can be a lucrative investment, there are some important considerations:
1. Dividend yield vs. dividend growth
Assess whether you prefer higher immediate income (higher dividend yield) or potential for future growth in dividends. Companies with higher yields may not have strong growth prospects.
2. Risk management
Diversify your portfolio to reduce risk. Relying heavily on a single stock or sector can expose you to significant risk if that company or sector faces challenges.
3. Company health
Continuously monitor the financial health and performance of the companies in your portfolio. A company that struggles may cut or eliminate dividends.
How are dividend stocks taxed?
Before April 1, 2020, dividend income from Indian companies was tax-exempt for investors because the company declaring the dividend had already paid the Dividend Distribution Tax (DDT). However, the tax rules changed with the Finance Act, 2020. Since then, all dividend income received on or after April 1, 2020, is taxable in the hands of the investor or shareholder. The DDT liability on companies and mutual funds was withdrawn, and the 10% tax on dividend receipts of resident individuals, Hindu Undivided Families (HUF), and firms in excess of Rs. 10 lakh (Section 115BBDA) was also withdrawn. This means that investors are now responsible for declaring and paying tax on their dividend income based on their applicable income tax rate.
Who should consider investing in dividend stocks?
Dividend stocks are suitable for a wide range of investors, including:
- Income-seeking investors: Those who want a regular stream of income from their investments.
- Conservative investors: Those looking for stable, low-risk investments.
- Retirees: Individuals in retirement seeking reliable income sources.
- Long-term investors: Those who plan to hold stocks for the long term and benefit from compounding.
- Tax-efficient investors: After the DDT change, dividend stocks offer tax advantages for many investors.
Limitations of stock dividends
- Market perception challenges: Stock dividends can be misunderstood as an indication of financial constraints, potentially leading to a drop in share price.
- Tax implications: In some regions, stock dividends may trigger tax obligations based on the market value of the additional shares.
- Dilution of voting power: The increase in outstanding shares may dilute individual voting influence, even though proportional ownership remains unchanged.
- Share price uncertainty: An increase in share numbers can lead to price adjustments, introducing volatility to the stock’s market value.
- Disruption of cash income: Investors relying on cash dividends may find stock dividends less appealing and need to adjust their financial planning.
- Divergence in shareholder preferences: While some investors value long-term growth, others prefer immediate cash returns, potentially leading to dissatisfaction.
Benefits of investing in dividend stocks
1. Stock price appreciation
When a company pays dividends, it often attracts more investors, increasing demand for the stock and potentially leading to stock price appreciation.
2. Source of passive income
Dividend stocks provide shareholders with a steady source of income through regular dividend payments, functioning like interest from fixed-income securities.
3. Dividend reinvestment
Investors have the option to reinvest their dividend payments, allowing them to maximize their investment earnings by purchasing more shares or other financial instruments of their choice.
Conclusion
Dividend stocks offer a unique investment opportunity in the Indian stock market. They provide a combination of regular income and potential for capital appreciation. However, like all investments, they come with risks. It is crucial to conduct thorough research, diversify your portfolio, and monitor your investments regularly. Additionally, stay updated on tax regulations to maximise the benefits of dividend stocks.
