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- Apr 24, 2023 - Are these 5 High Dividend Yield Stocks a Better Alternative to Fixed Deposits?
Are these 5 High Dividend Yield Stocks a Better Alternative to Fixed Deposits?
Fixed deposits (FDs) have become popular once again. Ever since banks hiked FD rates, all that I'm seeing these days is advertisements for IPOs and capital markets getting replaced by fixed deposits and gold.
At present, FDs offer interest rates as high as 7.5% per annum. To add to this, they guarantee returns.
However, some stocks offer dividend yields that are higher than FD rates.
The dividend yield is the return from a stock investment solely based on dividends. It is calculated by dividing the dividend per share by the current price of the share in question. The higher the dividend yield, the better.
Using the Equitymaster's powerful Indian stock screener, we've highlighted five such stocks that make the cut.
These stocks have consistently yielded better than FD returns and have a rich dividend history spanning over several years.
#1 Polyplex Corporation
First on the list is Polyplex Corporation.
Its current dividend yield stands at 8.4%. This means Rs 100 invested in the company will generate a dividend of Rs 8.4.
The company's five-year average dividend yield is 10.7%, which is much higher compared to the FD rates offered by top banks.
Polyplex Corporation Dividend History
| Year Ending | Dividend amount | Dividend Yield |
|---|---|---|
| Mar-23 | 85.0 | 7.4% |
| Mar-22 | 71.0 | 6.2% |
| Mar-21 | 197.0 | 17.2% |
| Mar-20 | 17.0 | 1.5% |
| Mar-19 | 51.0 | 4.5% |
| Mar-18 | 35.0 | 3.1% |
| Mar-17 | 7.0 | 0.6% |
| Mar-16 | 3.0 | 0.3% |
| Mar-15 | 2.5 | 0.2% |
| Mar-14 | 2.0 | 0.2% |
| Mar-13 | 3.0 | 0.3% |
Dividend yield as per 31 March 2023
The company has been consistently paying dividends since 2001. The dividend yield has also increased in the last few years.
The highest-ever dividend paid by the company was Rs 197 per share in financial year 2021.
What does Polyplex Corporation do, to pay such high dividends to shareholders?
Polyplex Corporation is an integrated and diversified manufacturer of plastic film substrates that are used in the packaging industry.
It has manufacturing facilities in India, the US, Thailand, Turkey, and Indonesia, with a total manufacturing capacity of 258,800 metric tonnes (MT).
The company has a leading market share in several countries, including Thailand, Turkey, and Indonesia.
In the last five years, the company has been performing exceptionally well, with revenue growth of 13.4% and profit growth of 27.7% on a compound annual growth rate (CAGR) basis.
As a result, the company has maintained strong return ratios, which translated into higher dividends.
Ratio Analysis
| Year Ending | Dividend Payout Ratio | RoE | RoCE |
|---|---|---|---|
| Mar-22 | 33.8% | 29.1% | 30.7% |
| Mar-21 | 59.7% | 28.2% | 29.1% |
| Mar-20 | 11.0% | 16.3% | 19.0% |
| Mar-19 | 27.9% | 21.1% | 22.7% |
| Mar-18 | 45.0% | 11.1% | 12.6% |
At present, the company is investing heavily to expand its capacity through greenfield and brownfield expansions at various manufacturing plants. This is expected to drive revenue and profit growth in the medium term.
So far in the financial year 2023, the company has paid a dividend of Rs 85 per share, which includes two interim dividends and one special dividend.
Despite investing in capex for expansion, the company has enough free cashflows to continue paying dividends to its shareholders.
Free cashflows (Rs m)
| Mar-18 | Mar-19 | Mar-20 | Mar-21 | Mar-22 |
|---|---|---|---|---|
| 1,017.4 | 2,770.2 | 1,773.7 | 5,305.7 | 1,407.8 |
To add to this, it has low debt on its books with a steady increase in interest coverage ratio indicating high liquidity.
To know more, check out Polyplex Corporation's financial factsheet and latest quarterly results.
#2 Banco Products
Second on the list is Banco Products.
The stock's current dividend yield is 8.34%, which means Rs 100 invested will generate a dividend of Rs 8.34.
Its five-year average dividend yield comes to 7.96%, which is higher than the FD rates of top banks.
The company has a rich history of dividend payments and has paid dividends to its shareholders since 2004. The company has also maintained a dividend yield above 3% in the last five years.
Banco Products Dividend History
| Year Ending | Dividend amount | Dividend Yield |
|---|---|---|
| Mar-23 | 8.0 | 3.6% |
| Mar-22 | 20.0 | 8.9% |
| Mar-21 | 22.0 | 9.8% |
| Mar-20 | 8.0 | 3.6% |
| Mar-19 | 10.0 | 4.4% |
| Mar-18 | 9.0 | 4.0% |
| Mar-17 | 4.6 | 2.0% |
| Mar-16 | 3.0 | 1.3% |
| Mar-15 | 2.0 | 0.9% |
| Mar-14 | 1.8 | 0.8% |
| Mar-13 | 2.5 | 1.1% |
Dividend yield as per 31 March 2023
Banco Products is engaged in the business of manufacturing and supplying engine cooling modules for automotive and industrial use in India and overseas.
It has several big names from the industry as its clients. Some of them are Ashok Leyland, Eicher, Mahindra, Godrej, and Indian Railways.
A sustained increase in revenue and profit has helped the company to increase its dividend payout in the last five years.
The five-year average dividend payout ratio stands high at 87.4%.
Ratio Analysis
| Year Ending | Dividend Payout Ratio | RoE | RoCE |
|---|---|---|---|
| Mar-22 | 93.8% | 15.5% | 23.2% |
| Mar-21 | 12.6% | 13.7% | 18.4% |
| Mar-20 | 186.8% | 10.8% | 16.0% |
| Mar-19 | 82.8% | 8.3% | 17.2% |
| Mar-18 | 61.2% | 14.5% | 21.0% |
The company plans to expand its business in Europe and US through its subsidiaries and has no major capex planned in the short term.
So far, the company has paid an interim dividend of Rs 8 in the financial year 2023.
Although the company is debt free and has no major outside obligations, its free cash flows for 2022 were negative, indicating a lower dividend for the current fiscal.
Free cashflows (Rs m)
| Mar-18 | Mar-19 | Mar-20 | Mar-21 | Mar-22 | 380.9 | -312.5 | 257.4 | 1,153.0 | -608.8 |
|---|
To know more, check out Banco Products financial factsheet and latest quarterly results.
#3 Coal India
Third on the list is Coal India.
This is the most obvious name in this list as stocks such as Coal India and ITC are often the go-to choices when investors consider investing in high dividend stocks.
Coal India is the largest coal-producing company in India and world, with a 'Maharatna' status under the ownership of the Ministry of Coal and the government of India.
The company contributes 80% of the country's coal production and supplies more than 80% of its production to the power sector.
The stock's current dividend yield is 7.4%. So if you invest Rs 100 in this stock, you can earn a dividend of Rs 7.4 at the current price. Its five-year average yield is 7.88%, and it has a dividend payout ratio of 74.78%.
Coal India has a rich history of paying dividends. Ever since its listing in November 2010, the company has paid dividends consistently. Moreover, not once in the last ten years has the dividend yield slipped below 5.6%.
Coal India Dividend History
| Year Ending | Dividend amount | Dividend Yield |
|---|---|---|
| Mar-23 | 20.3 | 9.5% |
| Mar-22 | 17.0 | 8.0% |
| Mar-21 | 16.0 | 7.5% |
| Mar-20 | 12.0 | 5.6% |
| Mar-19 | 13.1 | 6.1% |
| Mar-18 | 16.5 | 7.7% |
| Mar-17 | 19.9 | 9.3% |
| Mar-16 | 27.4 | 12.8% |
| Mar-15 | 20.7 | 9.7% |
| Mar-14 | 29.0 | 13.6% |
| Mar-13 | 14.0 | 6.6% |
| Mar-12 | 10.0 | 4.7% |
| Mar-11 | 3.9 | 1.8% |
Dividend yield as per 31 March 2023
Despite the increase in the capacity of renewable energy sources, the revenue of Coal India has grown at a CAGR of 6.2% in the last five years. The net profit also grew at a CAGR of 19.8% during the same period.
This is mainly due to the recovery in power demand and improvement in productivity of labour.
The company's return ratios have also significantly improved.
Ratio Analysis
| Year Ending | Dividend Payout Ratio | RoE | RoCE |
|---|---|---|---|
| Mar-22 | 60.3% | 40.3% | 52.0% |
| Mar-21 | 77.6% | 34.8% | 47.6% |
| Mar-20 | 44.3% | 51.9% | 72.0% |
| Mar-19 | 46.2% | 66.0% | 98.1% |
| Mar-18 | 145.5% | 34.9% | 52.7% |
The company is currently investing in land acquisitions, strengthening its rail infrastructure, and coal evacuation initiatives. Being a debt-free company, it is using internal cashflows to fund the capex.
Coal India has high free cashflows, which is why the company consistently pays high dividend.
Free cashflows (Rs m)
| Mar-18 | Mar-19 | Mar-20 | Mar-21 | Mar-22 |
|---|---|---|---|---|
| 165,784.8 | 94,349.5 | -37,571.2 | -3,323.4 | 272,317.6 |
In financial year 2023, it has paid two interim dividends totalling Rs 20.25 so far.
Considering its steady cash flows, robust financials, and its rich history of dividend payment, shareholders can expect a big dividend in 2023 too.
To know more, check out Coal India's financial factsheet and latest quarterly results.
#4 NALCO
Next on the list is NALCO.
Incorporated in 1981, NALCO is owned by the Ministry of Mines and the government of India.
The company primarily operates in the mining, metals, and power sector. NALCO is also the world's lowest-cost producer of metallurgical grade alumina and bauxite.
The stock's current dividend yield is 7.91% indicating that Rs 100 invested will translate into a dividend of Rs 7.91.
NALCO Dividend History
| Year Ending | Dividend amount | Dividend Yield |
|---|---|---|
| Mar-23 | 3.5 | 4.5% |
| Mar-22 | 6.5 | 8.3% |
| Mar-21 | 3.5 | 4.5% |
| Mar-20 | 2.8 | 3.5% |
| Mar-19 | 5.8 | 7.3% |
| Mar-18 | 5.7 | 7.3% |
| Mar-17 | 2.8 | 3.6% |
| Mar-16 | 2.0 | 2.5% |
| Mar-15 | 1.8 | 2.2% |
| Mar-14 | 1.5 | 1.9% |
| Mar-13 | 1.3 | 1.6% |
Dividend yield as per 31 March 2023
NALCO has a history of paying dividends right from 2003. In the last twenty years, not once did the dividend yield go below 1%.
Its five year average dividend yield comes to 7.4%, and the average dividend payout comes to 121%.
Owning to high aluminium prices, the company's revenue and net profit have grown at a healthy pace. Moreover, the company broke several records and reported the highest-ever sales, highest-ever revenue (Rs 141.8 bn) and highest-ever net profit (Rs 29.5 bn) in the financial year 2022.
As a result, the return ratios have also improved significantly.
Ratio analysis
| Year Ending | Dividend Payout Ratio | RoE | RoCE |
|---|---|---|---|
| Mar-22 | 40.5% | 23.5% | 31.7% |
| Mar-21 | 49.5% | 12.2% | 12.4% |
| Mar-20 | 371.2% | 1.4% | 2.3% |
| Mar-19 | 61.9% | 16.5% | 26.2% |
| Mar-18 | 82.1% | 12.8% | 19.4% |
Being a cyclical stock, NALCO's profits are linked to the price of aluminium. The company doubles its earnings on every US$ 400 a tonne increase in aluminium price.
However, at present, aluminium prices are extremely volatile owing to geopolitical tensions. Moreover, the company is facing difficulty in procuring coal due to disruption in global demand and supply.
Hence, NALCO's dividend payout can take a hit going forward. However, the company's growing free cashflows indicate otherwise.
Free cashflows (Rs m)
| Mar-18 | Mar-19 | Mar-20 | Mar-21 | Mar-22 |
|---|---|---|---|---|
| 1,959.5 | 16,768.5 | -10,104.2 | 11,097.1 | 25,717.5 |
The MD and chairman has said that they will continue to pay dividends from their cashflows. NALCO has paid two interim dividends totalling Rs 3.5 already in the financial year 2023.
Given that the company has zero debt, high free cash flows, and a rich dividend history, shareholders can expect steady dividends from NALCO going forward.
To know more, check out NALCO's financial factsheet and latest quarterly results.
#5 NMDC
Last on the list is NMDC, the largest iron ore manufacturer.
The company is engaged in the business of exploration and production of iron ore, diamonds and sponge iron. It has also forayed into renewable energy and generates and sells wind power.
NMDC has the lowest cost of producing iron ore in the country and enjoys cost leadership over its peers.
The stock's current dividend yield is 13.42%. This means if you invest Rs 100 in the company, it will generate a dividend of Rs 13.42.
NMDC has consistently paid dividends in the last 20 years, and its five-year average dividend yield is 5.94%.
NMDC Dividend History
| Year Ending | Dividend amount | Dividend Yield |
|---|---|---|
| Mar-23 | 3.8 | 3.4% |
| Mar-22 | 14.7 | 13.2% |
| Mar-21 | 7.8 | 7.0% |
| Mar-20 | 5.3 | 4.7% |
| Mar-19 | 5.5 | 4.9% |
| Mar-18 | 4.3 | 3.9% |
| Mar-17 | 5.2 | 4.6% |
| Mar-16 | 11.0 | 9.9% |
| Mar-15 | 8.6 | 7.7% |
| Mar-14 | 8.5 | 7.6% |
| Mar-13 | 7.0 | 6.3% |
Dividend yield as per 31 March 2023
In the last five years, the company's revenue has grown at a CAGR of 17% on the back of growing volumes. The net profit also grew at a CAGR of 19.8%.
As a result, the return ratios also improved significantly.
Ratio analysis
| Year Ending | Dividend Payout Ratio | RoE | RoCE |
|---|---|---|---|
| Mar-22 | 46.0% | 26.8% | 35.5% |
| Mar-21 | 36.4% | 20.9% | 29.3% |
| Mar-20 | 45.0% | 13.0% | 22.1% |
| Mar-19 | 36.4% | 17.8% | 27.8% |
| Mar-18 | 35.8% | 15.6% | 25.4% |
To meet the growing requirement for iron ore, the company plans to enhance the iron ore capacity to 67 MT by 2025 from the current capacity of 43 MT by 2025.
It has already invested Rs 2.4 billion (bn) towards this, which it sourced from internal accruals.
Being a debt-free company, the company has no outside obligations. This, along with high free cash flows, help NMDC pay steady dividends.
Free cashflows (Rs m)
| Mar-18 | Mar-19 | Mar-20 | Mar-21 | Mar-22 |
|---|---|---|---|---|
| 11,577.9 | 20,073.0 | -5,942.1 | 53,032.7 | 50,646.0 |
In the financial year 2023, NMDC has already paid an interim dividend of Rs 3.75.
Given the company's growth plans and high free cashflows, shareholders can continue to expect steady dividends from NMDC.
To know more, check out NMDC's financial factsheet and latest quarterly results.
Snapshot of top stocks with dividend yield above FD rate from Equitymaster's Indian Stock Screener
Here's a quick view of the above companies based on their financials.
Please note that these parameters can be changed according to your selection criteria.
This will help you identify and eliminate stocks not meeting your requirements and emphasise those stocks well inside the metrics.
Investing in high dividend yield stocks...
Comparing the FD rate with dividend yields isn't an ideal approach. You shouldn't base your decision solely on dividend yields.
If dividend stocks interest you, then check the fundamentals such as revenue growth and profit growth. You must also check the consistency in dividends and whether the company will be able to grow the payout going forward.
If you wish to invest in high dividend yield stocks, think of it this way...
At the current valuations, you're getting a decent stock that not only gives FD like returns but has the potential to provide both capital appreciation as well as increase in dividend payouts in the future.
Happy investing!
Safe Stocks to Ride India's Lithium Megatrend
Lithium is the new oil. It is the key component of electric batteries.
There is a huge demand for electric batteries coming from the EV industry, large data centres, telecom companies, railways, power grid companies, and many other places.
So, in the coming years and decades, we could possibly see a sharp rally in the stocks of electric battery making companies.
If you're an investor, then you simply cannot ignore this opportunity.
Details of our SEBI Research Analyst registration are mentioned on our website - www.equitymaster.comDisclaimer: 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...
FAQs
Which are the top dividend yield stocks in India right now?
As per Equitymaster's Stock Screener, these are the top dividend yield stocks in India right now.
- #1 VEDANTA
- #2 HINDUSTAN ZINC
- #3 COAL INDIA
- #4 ONGC
- #5 POWER GRID
These largecap companies are ranked as per their dividend yield. A higher yield is more attractive, while a lower yield can make a stock seem less competitive relative to its industry.
Of course, there are other parameters you should take into account as well before forming a hard opinion on the stock.
What is the dividend yield of a company and how is it calculated?
The dividend yield of a company is a financial ratio that measures the quantum of cash dividends paid out to shareholders relative to the market value per share.
It is calculated by dividing the annual dividend per share by the market price of the share.
Dividend Yield = 100% * (annual dividend per share/market price per share)
It is often expressed as a percentage of the market price of the share.
Here's an example...Suppose company X's stock price is Rs 300 and the company's dividend per share is Rs 10. Using the above formula, the dividend yield of a company is 3.3%.
This means that for every Rs 100 invested in the share, investors earn a dividend of Rs 3.3.
What kind of companies pay high dividends?
A company can do two things with the profits that it earns - It can either plough the profits back into the company for investing in capex, new products or distribution or pay out the amount as dividend and become a dividend stock.
As such, dividend payout depends a lot on the cash (after meeting its capital expenditure and working capital requirements) a company generates during a year.
Often companies do not need to reinvest into the business purely because they don't see the need for it.
A classic example would be of companies from the FMCG sector. The FMCG sector is a slow yet steady growing industry. But yet, companies choose to pay out huge dividends due to the sector's slow growing nature as capex requirements are on the lower side.
As against this commodity businesses like cement, steel, textile or even capital goods and telecom businesses need to constantly reinvest cash. This leaves very little on the table to pay to shareholders by way of dividends.
Is every high dividend yield company a good buy?
Absolutely not. Not all dividend stocks should be treated equally.
When identifying the right dividend stock to invest in, here's a few things to keep in mind...
A good dividend stock should be available at an attractive dividend yield. This does not mean the higher the yield, the better the stock. On the contrary, a higher yield can be a result of an extremely beaten down stock price.
But more importantly, a company with a high dividend yield should have good governance practices and must not have a history of ignoring the interest of minority shareholders.
Thus, along with the strong corporate governance, good growth prospects and a healthy dividend policy are crucial for investing well.
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