Top 5 High Dividend Yield Smallcap Stocks to Watch Out for in 2025

Indian smallcap stocks have delivered remarkable returns for investors over the last few years. As these smaller companies have grown and expanded, they've created wealth by capitalising on niche markets and emerging opportunities.

With many smallcap stocks significantly outperforming their large-cap counterparts, they have drawn the attention of savvy investors.

Among these, high dividend yield smallcap stocks stand out as a unique category, offering not just potential for capital appreciation but also steady income through dividends.

As we approach 2025, some of these companies are well-positioned to deliver both value and reliability.

In this article, we'll explore five high dividend yield smallcap stocks that deserve a spot on your watchlist.

These have been filtered using the Equitymaster screener - High-dividend yield stocks in India.

#1 PowerGrid InvIT

First on our list is PowerGrid InvIT. The company owns, constructs, operates, maintains, and invests in power transmission assets in India.

It is sponsored by Power Grid Corporation India. It's also responsible for managing the InvIT, providing the initial portfolio assets, and undertaking investment decisions related to its assets.

At the current market price, the company's dividend yield stands at 13.7%.

PowerGrid InvIT registered with the market regulator as an InvIT on 7 January 2021. Since then, the company has paid consistent dividends.

Have a look at its dividend history.

PowerGrid InvIT Dividend History (2022-2024)

Year	Dividend per share (in Rs)
FY24	12
FY23	12
FY22	8

Source: Ace Equity

The company has high revenue stability due to the presence of transmission service agreements (TSAs) for 5 years (average residual TSA period of 28 years) with revenues linked to transmission system availability.

The presence of CERC (Sharing of Inter State Transmission Charges and Losses) Regulations 2020, for the collection of transmission charges leads to high cash flow stability.

This allows the company to pay consistent dividends.

Despite its dividend history, the company has delivered poor sales and net profit growth over the last three years. It also has high-interest rate risk for the debt availed as the transmission charges are fixed in nature for the tenure of the TSA.

However, the net debt/AUM remained lower at 0.26% as on 31 March 2024. This leaves sufficient headway for the InvIT to acquire new assets through debt funding.

For more details, see the PowerGrid InvIT fact sheet and quarterly results.

#2 Chennai Petroleum

Second on our list is Chennai Petroleum.

The company is involved in the business of refining crude oil to produce & supply various petroleum products and manufacture and sale of lubricating oil additives.

Chennai Petroleum's dividend yield is 9.2%. Its 3-yr average dividend payout ratio is 14.6%.

Check out the company's dividend history.

Chennai Petroleum Dividend History (1994-2024)

Year	Dividend per share (in Rs)
FY24	55
FY23	27
FY22	2
FY18	18.5
FY17	21
FY16	4
FY12	2
FY11	12
FY10	12
FY08	17
FY07	12
FY06	12
FY05	12
FY04	5
FY03	4
FY02	2
FY01	2.5
FY00	3
FY99	3.5
FY98	2.75
FY97	2.5
FY96	2.5
FY95	2.5
FY94	2.5

Source: Ace Equity

In the past 5 years, the company has reported only a 10% compounded annual growth rate (CAGR) in its revenue.

Despite this, the company maintained strong financial health, with an average RoE (return on equity) of 29.4% and RoCE (return on capital employed) of 23.2%.

CPCL is working on a nine-million-ton-per-annum (MTPA) refinery at the Cauvery basin site in Nagapattinam district through a joint venture with its parent company, Indian Oil Corporation (IOCL).

The company is expected to invest about Rs 30.3 bn for its 25% stake in the project at a cost of Rs 363.5 bn. The refinery, with a capacity of 180,000 barrels per day, is projected to be operational by the end of 2027, marking a two-year delay from the original target of 2025.

The project cost had also been revised to about Rs 364 bn (US$ 4.36 bn), with about 66% of that to be met through debt. Chennai Petroleum had pegged the previous cost at about Rs 294 bn.

The company is in discussions with banks to secure a substantial loan of US$ 3.3 bn to support the construction of a major oil refinery in Tamil Nadu, India.

For more details, see the Chennai Petroleum fact sheet and quarterly results.

#3 Procter & Gamble Health

Third on our list Is Procter & Gamble Health.

The company is engaged in the business of manufacturing and marketing of pharmaceuticals and chemicals.

It is one the India's largest VMS companies, manufacturing and marketing vitamins, minerals and supplements. It has a strong portfolio of various pharma brands such as Evion, Neurobion, Seven seas, Nasivion, Polybion, Cosome, and Livogen.

In 2018, the company (erstwhile Merck Ltd) was acquired by Procter & Gamble Company of USA as a part of a global transaction to acquire Merck KGaA's international consumer healthcare business for a total of US$ 4.2 bn. P&G acquired 51.8% stake of Merck for Rs 13 bn.

Procter & Gamble Health's dividend yield stands at 4.6%. The company has been maintaining a healthy dividend payout of 110% over the past three years.

Procter & Gamble Health Dividend History (1997-2024)

Year	Dividend per share (in Rs)
FY24	260
FY23	95
FY22	52.5
FY21	130
FY20	230
FY18	440
FY17	15
FY16	11
FY15	7.5
FY14	6
FY13	8.5
FY12	2.5
FY10	95
FY09	20
FY08	17.5
FY07	20
FY06	20
FY05	15
FY04	10
FY03	10
FY02	7.8
FY01	10
FY00	6
FY99	4.2
FY98	3.7
FY97	3.2

Source: Ace Equity

P&G Health has delivered a poor sales growth of 6.3% over past five years. The company's net profit has also seen degrowth of 24% on a CAGR basis.

However, the company has strong return ratios. Its RoE and RoCE stand at 31.6% and 42.5% as of June 2024. It also has no debt on its books.

The healthcare sector in India has undergone a significant transformation, fuelled by substantial investments in infrastructural development.

Since 2016, the Indian healthcare industry has witnessed a consistent growth trajectory, boasting an impressive Compound Annual Growth Rate (CAGR) of about 22%.

The consumer healthcare sector shows promising prospects for the future. The company is well-positioned to sustain and strengthen its position in the market.

For more details, see the Procter & Gamble Health fact sheet and quarterly results.

#4 PTC India

Fourth on our list is PTC India.

The company in the power trading business. It is promoted by Power Grid Corporation of India Limited (PGCIL), NTPC Limited (NTPC), Power Finance Corporation Limited (PFC), and NHPC Limited (NHPC).

PTC undertakes trading activities which include long term trading of power generated from large power projects as well as short term trading arising as a result of supply and demand mismatches.

It is also co-promoter of India's first electricity exchange (IEX) and does Cross Border Trade with Nepal, Bhutan, & Bangladesh.

PTC India has a dividend yield of 4.4%. The company has paid dividends consistently since 2002 and has been maintaining a healthy dividend payout of 48.6% over the past three years.

PTC Dividend History (2002-2024)

Year	Dividend per share (in Rs)
FY24	7.8
FY23	7.8
FY22	7.8
FY21	7.5
FY20	5.5
FY19	4
FY18	4
FY17	3
FY16	2.5
FY15	2.2
FY14	2
FY13	1.6
FY12	1.5
FY11	1.5
FY10	1.2
FY09	1.2
FY08	1
FY07	1
FY06	1
FY05	0.8
FY04	0.8
FY03	0.3
FY02	0.7

Source: Ace Equity

The company's financial performance, however, has been muted over the last five years. The company's sales have grown at a CAGR of 2% while net profit has grown at 3%.

However, the management remains optimistic about the power trading business despite some challenges in demand and weather conditions.

It is expecting better performance in the upcoming quarters if the monsoon is favourable and generation from hydro plants increases.

It remains optimistic about its financial performance in the second half of the financial year, stating no headwinds are anticipated.

It has signed a definitive agreement signed for the sale of PTC Energy Limited (PEL) to ONGC Green Limited, with closure expected by mid-December 2024.

It has also reassured that divestment considerations for PTC India Financial Services (PFS) will be revisited post the PEL transaction.

The company aims to maintain a balanced mix of long-term and short-term contracts, targeting a growth rate of 6-7% in line with national trends.

It plans to focus on diversifying products and exploring new markets, including imports from Bhutan and Nepal.

For more details, see the PTC India fact sheet and quarterly results.

#5 VST Industries

Last on our list is VST Industries.

The company is engaged in the manufacture and trade of cigarettes, tobacco, and tobacco products.

The company is the third largest player in the domestic cigarette market, with a significant presence in West Bengal, Andhra Pradesh, Telangana, Bihar, and UP with 8% market share based on volume.

Its cigarette brand Total is among the top 10 brands in the industry.

VST Industries has a dividend yield of 4.1%. The company has been paying dividends since 1997. Have a look at its dividend history.

VST Industries Dividend History (1997-2024)

Year	Dividend per share (in Rs)
FY24	150
FY23	150
FY22	140
FY21	114
FY20	103
FY19	95
FY18	77.5
FY17	75
FY16	70
FY15	70
FY14	70
FY13	62.5
FY12	65
FY11	45
FY10	30
FY09	30
FY08	20
FY07	20
FY06	12.5
FY05	12.5
FY04	6
FY03	5.5
FY02	4.5
FY01	2.5
FY00	1
FY98	1
FY97	1

Source: Ace Equity

The company has delivered a poor sales growth of 5% over past five years impacted by sluggish rural demand. Its net profit has also grown at slow pace of 6% on account of higher share of the low-margin tobacco segment, increase in tobacco crop prices, and higher packaging cost.

Though key raw material prices continue to be abnormally high, the company is rationalizing its cost structures and placing great emphasis on innovation and digitization to improve margins.

The company's return ratios also stand strong with RoCE and RoE at 32.5% and 24.6% respectively in FY24. The balance sheet is debt free.

For more details, see the VST Industries fact sheet and quarterly results.

Conclusion

Indian smallcap stocks have proven to be a rewarding avenue for investors seeking both growth and income. The five high dividend yield smallcap stocks discussed here offer a blend of stable dividends and the potential for significant capital appreciation.

However, while these stocks may seem promising, it's important to remember that smallcap investments come with unique risks, including market volatility and liquidity concerns.

Investors should always conduct thorough research and consider their financial goals, risk tolerance, and investment horizon before making any decisions.

Consulting a financial advisor or analysing company fundamentals, industry trends, and market conditions can help in making informed choices.

By staying diligent and informed, investors can make the most of the opportunities these high dividend smallcap stocks present in 2025 and beyond.

By the way, you can also check out the video version of this editorial on Equitymaster's YouTube channel.

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...