Long term investment is always a matter of patience. It may take several years for your investment to give tangible returns. In the meantime, you will earn some of your money back in the form of dividend payouts. Also, some investors consciously choose to invest in the highest dividend paying stocks to generate steady income over time.

But how do you know which stocks pay the highest dividend per share in the Indian market? Well, in today's post, we will explore the top 10 stocks that have been paying high dividends to their investors. However, let's have a look at some basics first.

What is a dividend?

A dividend is a part of the company's earnings, distributed among its common stockholders. Dividend payments are usually made in cash but can also be issued in the form of additional shares or other forms of property. Investors often see dividends as a sign of financial health and stability of a company.

Types of dividends

Primarily there are four types of dividends,

1. Cash dividends: Paid directly into the linked accounts of the shareholders.
2. Stock dividends: Credited as additional stocks to the shareholder's DEMAT account.
3. Property dividends: Given in the form of assets other than cash or stock, but is rarely used by companies nowadays.
4. Special dividends: One-time payments that are not part of the regular dividend schedule.

Payment frequency

Dividends are paid at regular intervals, usually on quarterly, semi-annual, or annual basis. Some companies may also issue special dividends outside of their regular payment schedule.

Declaration of dividend

Dividend must be declared by a company's board of directors before it is paid. Once declared, the company sets a record date and a payment date. The record date is for checking and determining the number of shareholders eligible for payment. The payment date is when the dividend is transferred.

Dividend yield

It is a financial ratio that shows the amount of dividend paid by a company relative to its stock price. The dividend yield is calculated as the annual dividend per share divide by the price per share.

Dividend Reinvestment Plans (DRIPs)

Some companies may offer a reinvestment plan for the stockholders to reinvest their cash dividends to purchase additional company stock at a discount or without having to pay brokerage fees or both.

Reasons to invest in high dividend paying stocks

There are several reasons why investors are attracted by good dividend paying stocks in India:

Income generation

High dividend paying stocks are a good source of steady annual income. These stocks can be especially attractive when held in large quantities.

Potential for growth

Even when high dividend paying stocks are generally mature and may not offer the kind of annual price increases offered by other common stocks, they still have room for growth. It means investors can get the dual benefit of high dividend and potential appreciation.

Less volatile

Dividend paying stocks are often low-risk and less volatile, and thus provide a cushion against market downturns for your portfolio.

Historical advantage

Dividend paying stocks have historically outperformed non-dividend paying stocks in terms of returns. Reinvesting dividends in these stocks can compound returns over time.

Tax advantage

In some instances, dividends may be taxed at a lower rate than income from interest. But it depends on the type of dividend (qualified or ordinary) and the holding period of shares. A qualified dividend must satisfy the following conditions to be eligible for lower taxation:

• It must be paid by an Indian or a foreign company listed on an Indian stock exchange
• The dividend must be declared, distributed, or paid by the company on or after April 1, 2020.
• The holding period of shares should be more than 12 months before the record date.

A qualified dividend is taxed at a flat rate of 10% (plus surcharge and cess) under Section 115BBD of the Income Tax Act, 1961. This tax is deducted at source by the company before paying the dividend to the shareholder.

But, if the total dividend income received by the shareholder in a financial year exceeds INR 10 lakh, then he/she has to pay an additional tax of 10% (plus surcharge and cess) under Section 115BBDA of the Income Tax Act, 1961. This tax has to be paid by the shareholder while filing his/her income tax return.

How to find the highest dividend paying stocks?

Use dividend yield as a metric to find out the stocks offering the highest dividend payouts in India. You can use online stock screening tools or contact a financial advisor for help. However, it is important to consider other factors like dividend sustainability, growth potential, and the company's financial health before buying such stocks. Make sure that the high yield is due to sustainable practices and not a result of recent stock price decline.

Also Read: Long term or short term investments? Where to invest?

Concluding thoughts

PickRight is a well-established financial advisory market ecosystem in India, built with contemporary tech to track and monitor every stock activity in real-time.

At PickRight, we encourage investors to examine market data and be mindful of their investment and risk-taking potential before investing in the stock market.

Frequently asked questions:

1. What is Ex-date?

It is the date on or after which a stock is traded without a previously declared dividend or distribution. Meaning, as an investor you have to buy the stock on or before the ex-date to be eligible to receive the declared dividend.

2. What is an interim dividend?

Interim dividend is the dividend that is paid quarterly or monthly, but is not the final dividend. Final dividend is always given after the annual meeting and the release of the annual financial statement of the company.

3. How many times can a company distribute dividends?

Typically, companies announce dividends on an annual, semi-annual, or quarterly basis. Although, some companies may even pay monthly dividends.