High Dividend Paying Stocks with Good Fundamentals [2023]

Do you think it is worth investing in high dividend paying stocks? Is it enough to invest in dividend paying company only?

Hey investor, in this post, you will find answers to these questions in depth. I have tried to give you complete information about all aspects of dividend investment. Finally I will simply tell you 10 names of stocks which are high dividend paying stocks.

But….Wait!

Trend – As you know that investing in such stocks can be a good way to earn regular money from the stock market.

Alert – But investing only in the name of a high yield dividend company is not always fruitful.

That’s why, I will also tell you at least 10 such Indian stocks which are not only high dividend paying stocks but they are also fundamentally strong enough having high growth rate of dividend. This is the new trend of investing also known as Dividend Growth Investing.

So, let’s understand these things in details now.

What is Dividend?

The portion of the annual earnings the company distributes to its shareholders is called dividend. It is usually expressed as a percentage of the face-value of the share, or rupees per share.

For example, suppose you buy 100 shares of a XYZ company at a price of Rs. 40 per share. Your investment here is Rs. 4000. But the face value of share (when shares were first released) is Rs 10 per share.

Now, if the company declares a dividend of 20% or two rupees per share. Then you are not going to get Rs 800 of your investment. You will get only 200 rupees as dividend which is calculated on the basis of face value.

It is not necessary that all companies declare dividends every year. The company does not pay dividends in the case of loss. But most of the benefited companies allot dividends every year or pay sometimes quarterly.

Many companies divide the annual dividend into two parts – interim and final. The rate of dividend depends on the profits made to the company and the amount to be shared among the shareholders.

What is Dividend Yield?

It is important for investors to know how much the dividend has an impact on the share price in the market. The ratio used to know this is called the dividend yield. It is the ratio of dividend per share to the market price of a share, multiplied by 100.

Dividend Yield = (dividend/current market price) x 100

Dividend Yield is computed in the form of percentage. With this ratio you can estimate how much percentage you will earn as dividend by buying shares at current price.

To understand this, take the example given above- Since the company declares a 20% dividend. So you will get a total dividend of 200 rupees. But you bought these shares at a price of 40 rupees, you got 5% income or yield on this investment.

Yield = (2/40)×100 = 5%

Dividend and dividend yield are two different terms but investors sometimes get confused.

You should clearly understand that the dividend company declares while the dividend yield depends on the price you bought the share. Dividend Yield is a more important ratio than dividend. The average yield of shares in India is usually around 2%.

Types of Dividend

Dividends are paid in many forms. They are-

1. Cash Dividend

This is the most popular way of paying dividends where you will receive your dividend in cash in your bank account.

2. Stock Dividend

Sometimes companies pay dividends in the form of stock. In this case they declare the stock ratio as a dividend by a statement. That is, how many shares you will receive as dividends for the number of shares you have.

3. Property Dividend

When a company distributes its tangible assets as dividends to its shareholders, it is called property dividend. This is a rare type of dividend.

Important Dividend Dates

Now you should know about the important dates related to dividend.

Otherwise, due to lack of knowledge, you will not be able to take advantage of the dividend to be paid by the company. Since these terms are a bit tricky. Therefore you should understand it well.

1. Dividend Declaration Date

This is the date that a lot of investors wait for. On this date dividends are declared by company’s board of directors. Record date is also declared on dividend declaration date.

2. Record Date

The date when the company identifies all of its existing shareholders so that dividends can be paid to them is called the record date. Since market settlement pattern is followed by T+2 trading days by stock exchanges.

That’s why you you should buy a share at least 2 trading days before the record date to receive dividend. Otherwise you will not be eligible to receive dividends for that company.

3. Ex-Dividend Date

Ex-dividend date is the date that makes you eligible to receive dividends. This is the threshold date before which if you buy the stock, you will get a dividend.

If you buy shares on or after the ex-dividend date, you will get nothing. It is the most important date for an investor.

4. Payment Date

It is the date on which you receive your dividend by the company. I hope you have understood all these important dates.

What are High Dividend Paying Stocks?

There is not a fixed rule that defines high dividend yield stocks. A benchmark for this is decided by analysts in their own way. You can also make a good guess by looking at the records of the past few years of the best dividend paying stocks.

Roughly speaking, you can think of a stock paying 4-6 percent dividend yield as a high payout. In other words, annual dividend growth rate should be equal to or more than inflation rate.

Pros of Investing in High Dividend Yield Stocks

“Why investing in dividend shares?”, is a common question. But its advantages are the answer that motivates investors to invest in such stocks.

These are:

1. Lower-Risk Investments 

This is the most likely reason why an investor wants to invest in dividend shares. You can use such stocks for risk management to optimize your investment.

2. Source of Regular Income

The question that comes to the mind of many new investors is whether regular income is possible from the stock market.

And one answer to this question is to invest in dividend stocks. Investing in such stocks becomes a source of regular income.

3. Passive Income

Dividend investment assures you to pay a passive income. After investing, you don’t have to do anything to get a dividend in the form of passive income.

Initially, all you need to do is to find high dividend paying stocks.

4. Protect against Market Fluctuations

Best dividend paying stocks can be used as a defensive tool to protect your hard money during market fluctuations. Globally, market volatility can be seen these days due to the outbreak of COVID-19, coronavirus. This is really sad!

5. Defensive Stocks in Bear Market

These stocks prove to be very helpful when the market is in recession. You can make a dividend with growth by buying such stocks at a lower rate.

Cons of Investing in High Dividend Yield Stocks

There are some loopholes in high dividend paying stocks such that you have to think before you invest in them. 

These are:

1. Chances of Being Misleading Companies

High dividend paying stocks may be misleading because these stocks are highly publicized. Retail investors also have the misconception that such companies are very rich and profitable.

2. Possibility of Being a Low Growth Company

There are many companies in the market that can give very good dividends to their investors if they wish. But they do not do this. The reason is that they focus on the growth of the company and it requires cash.

Therefore, they do not pay dividends to their investors or even give very little. Like Google (GOOG). If the companies distribute its profit cash as dividends, there is no safe cash left for their growth.

This also reduces the company’s growth prospects in the future.

3. High Risk of Profit Stripping

You start to consider companies with high dividends as very good companies. You think that the company takes great care of its investors. While it is possible that this may not happen in reality.

It can also be a way of sharing the company’s profit. Many times it has been observed that a high dividend was declared. And it was intended only for the owner of the company to hold a significant stake or to benefit the promoter of the company.

Which is also known as profit-stripping.

4. Low Growth of principal

Because often such companies are not able to perform well in future. Hence, the growth of principal on your investment is also at risk.

5. Taxation 

Small investors are exempted from paying tax on their dividends. But if you exceed the dividend amount of 10 lakhs then you will have to pay tax @ 10% as capital gains.

High Dividend Paying Stocks

Here, I am listing the BSE top 10 high dividend paying stocks in the Indian stock market.