ITC to Coal India: Are these the Best Dividend Stocks You can Count on?

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  • Jan 25, 2022 - ITC to Coal India: Are these the Best Dividend Stocks You can Count on?

ITC to Coal India: Are these the Best Dividend Stocks You can Count on?

Jan 25, 2022

ITC to Coal India: Are these the Best Dividend Stocks You can Count on?

Financial year 2021-2022 will end in a couple of months. With that, companies will announce dividends to their shareholders.

Dividends are of a particular importance for both companies and investors.

How?

Well, a young company pays dividends to increase its credibility among investors whereas a legacy company pays dividends to reinforce its commitment to creating long term value for its shareholders.

Interestingly, a few companies always make their way into conversations around dividends. It's almost as if they are synonymous with the word "dividend".

In addition to these 'known' dividend stocks, there are a few more which reward their shareholders with dividends every year. This article brings to you a list of companies that consistently pay dividends and creating value for them.

1. Coal India

India generates 55-60% of its energy through fossil fuels and a lot of it is through coal. Majority of thermal power plants in the country are powered by coal. This makes it the most dominant fossil fuel in the country.

And the company that dominates the Indian coal market is none other than Coal India.

Coal India is India's largest coal producer. It accounts for 82% of India's total coal production. Not just India, the company holds the distinction of being the largest coal producing company in the world.

It's one of India's 10 Maharatna public sector enterprises (PSEs) and comes under the Ministry of Coal. The Indian government owns 66.13% of the company and is the largest shareholder.

The company mines several types of coal that is supplied to power producers and steel manufacturers.

With its market leading position, the company sits on a huge pile of cash. It uses the cash reserve to pay dividends consistently.

Coal India has paid 18 dividends (including interim dividends) in the last 10 years. Its average dividend payout ratio is more than 50%.

The company has already paid Rs 9 per share as interim dividend, more than 90% of its earnings in the first half. With expected higher earnings in the coming quarters, the final dividend could be even higher.

The following table shows Coal India's dividend payout ratio for the last five years.

Coal India Dividend Payout History

  FY17 FY18 FY19 FY20 FY21
Dividend payout (%) 133.1 145.5 46.2 44.3 77.6
5 year average 89.34
Source: Equitymaster

Though the company has been consistent with dividends, the stock hasn't performed well since it got listed. In fact, the stock is currently trading below its IPO issue price of Rs 245 per share.

Also, rapid adoption of renewable energy poses a major threat to Coal India's business which has dented investors sentiment.

For more details, check out Coal India's financial fact sheet and quarterly results.

2. Balmer Lawrie

Balmer Lawrie is an Indian miniratna PSE under the Ministry of Petroleum and Natural Gas.

The origins of this company dates back to 1867 when two Scotsmen took the entrepreneurial plunge to incorporate the company.

Balmer Lawrie has an extremely diversified business with significant presence across eight business verticals such as chemicals, packaging, travel & tourism, etc.

The company claims to be a market leader in products such as steel barrels, greases & lubricants, and corporate tourism and travel services.

Like many other PSEs, Balmer Lawrie too pays hefty dividends. Its dividend paying consistency dates back to the year 1995. Since then, it has declared dividends every passing year. Balmer Lawrie's dividend payout averages 86% for the last five years.

The following table shows Balmer Lawrie's dividend payout for the last 5 years.

Balmer Lawrie Dividend Payout History

  FY17 FY18 FY19 FY20 FY21
Dividend payout (%) 51.5 68.5 77.8 108.5 124.2
5 year average 86.1
Source: Equitymaster

For more details, check out Balmer Lawrie's financial fact sheet and quarterly results.

3. National Mineral Development Corporation (NMDC)

NMDC is an Indian PSE under the control of the Ministry of Steel, Government of India.

Incorporated in 1958, the company is engaged in the business of exploring and mining several key minerals such as iron, copper, limestone, etc.

NMDC owns three iron ore mines making it India's largest producer and exporter of iron ore. To put it in numbers, the company produced 35 m tonnes of iron ore in the fiscal year 2021.

As of 31st March 2021, NMDC had a robust balance sheet with a total cash balance of Rs 58 bn. As a result, the company continued with its long standing tradition of paying regular dividends by paying an interim dividend of Rs 9 per share of face value of Re 1.

The company's dividend payout averages more than 40% over the last five years.

NMDC Dividend Payout History

  FY17 FY18 FY19 FY20 FY21
Dividend payout (%) 63.1 35.8 36.4 45 36.4
5 year average 43.34
Source: Equitymaster

For more details, check out NMDC's financial fact sheet and quarterly results.

4. ITC

Established in 1910 as Indian tobacco company (ITC), the company has evolved into a large conglomerate with presence across several industries such as FMCG, packaging, hotels, and agriculture.

Though the company manufactures a range of products, it specialises in cigarettes. ITC has been making cigarettes for more than 100 years. It's the indisputable market leader in India.

ITC's cigarette segment falls under its FMCG division which accounts for 65% of its total revenue.

ITC finds a place in the portfolio of many fund managers as the company pays steady dividends to its shareholders. ITC's dividend payout averages at 69% for the last five years.

The following table shows the dividend payout of ITC for the last five years.

ITC Dividend Payout History

  FY17 FY18 FY19 FY20 FY21
Dividend payout (%) 55.1 54.7 55 80.1 98.8
5 year average 68.74
Source: Equitymaster

Though the company has been paying regular dividends, the stock hasn't been doing well on the bourses. The stock has underperformed the benchmark indices as investors look forward to investing in its FMCG business which is reportedly expected to get listed as a separate entity.

For more details, check out ITC's financial fact sheet and quarterly results.

5. Marico

Marico is a leading consumer goods company operating in the health, beauty, and wellness space. It manufactures products across several categories such as hair oil, edible oil, men's grooming, healthy foods, etc.

The company markets several popular brands in the Indian market such as Parachute, Saffola, Livon, etc. Apart from India, the company markets its products in more than 25 emerging markets.

Marico has been a major wealth creator. Its stock price has risen at a CAGR of 28.8% since listing. In addition to capital appreciation, the company has been regularly paying dividends.

Marico Dividend Payout History

  FY17 FY18 FY19 FY20 FY21
Dividend payout (%) 55.6 66.3 54.2 83.6 80.6
5 year average 80.6
Source: Equitymaster

Marico's dividend payout averages 80.6% for the last five years.

As far as financial year 2021 is concerned, the company has already paid an interim dividend of Rs 3 per share which could be followed by a final dividend in March 2022.

For more details, check out Marico's financial fact sheet and quarterly results.

6. Divi's Laboratories

Divi's Laboratories is one of the prominent players in the Indian pharmaceutical industry. It's one of the leading manufacturers of generic APIs in the world.

The company offers 25 APIs to its clients of which it's a leading supplier of 10 APIs. Its products are sold in more than 95 countries across the world.

Divi's Laboratories owns two world class manufacturing facilities in India with one of them being the world's largest API manufacturing facility.

Divi's Laboratories is a preferred partner for many pharma companies to meet their API requirements. Due to its dominant position in the global supply chain, the company boasts of extremely robust financials and healthy cash reserves.

Divi's Laboratories has never let down its shareholders when it comes to dividends.

Divi Laboratories Dividend Payout History

  FY17 FY18 FY19 FY20 FY21
Dividend payout (%) 25 30.3 31.4 30.9 26.8
5 year average 26.8
Source: Equitymaster

Divi's dividend payout averages at 26.8% in the last five years.

For more details, check out Divi's Laboratories' financial fact sheet and quarterly results.

7. Hindustan Unilever (HUL)

HUL is one of India's largest FMCG companies with its headquartered in Mumbai.

The company was Incorporated in 1931 as an Indian subsidiary of British FMCG multinational, Unilever.

It manufactures several products across 14 categories and boasts a portfolio of 44 brands, many of which are extremely popular in India.

With a market leading position, HUL has grown ever since it started its operations in India. The surge in its stock price is testimony to its business growth.

Low requirements for capex translates to higher free cash flows. This helps HUL reward its shareholders with dividends regularly thereby creating value for them.

HUL's dividend payout averages more than 100% in the last five years.

Hindustan Unilever Dividend Payout History

  FY17 FY18 FY19 FY20 FY21
Dividend payout (%) 81.9 82.8 78.6 80.1 119
5 year average 119
Source: Equitymaster

For more details, check out HUL's financial fact sheet and quarterly results.

Conclusion

Dividends form a major chunk of returns an investor generates from the stock market.

Therefore, an investor should analyse the dividend profile of a company before investing.

However, it shouldn't be the only factor influencing investment decisions. Dividends alone don't paint the whole picture. An investor also needs to analyse the growth prospects of the industry, quality of the management, debt levels, and most importantly, the company's fundamentals.

Many investors come to know of dividend stocks from their social circle or they are talked about on business channels. However, investing in stocks based on such tips is highly risky and not recommended.

Instead, you can shortlist dividend paying stocks in just a few seconds using Equitymaster's powerful stock screener. Not just powerful, it's also flexible, allowing you to run your own custom queries.

Here are some screens for Dividends on Equitymaster's stock screener:

Speaking of dividend stocks, smallcap analyst at Equitymaster, Richa Agarwal, recently recorded a video exploring the concept of dividend investing.

Don't forget to check the list of stocks with healthy dividends Richa shared in the video.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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