Highest Dividend Paying Stocks in India

 

The concept of dividends can be considered a significant factor because investors view it as a passive source of income from investments. It serves as an inspiring factor for new investors, and a few years ago when the stock market wasn't as technologically driven, it was one of the key aspects that savvy investors would consider before making investments. However, with advancements in technology and data-driven investing, this mindset has evolved.

Nevertheless, profits and dividends remain a crucial factor for investment in shares. Here is a list of companies with high dividend yield that are known for providing good dividends to their investors.

What is Dividend ?

A dividend is a sum of money that a business delivers to its shareholders from its profits or retained earnings.

Retained earnings, which result from a company making a profit, are either reinvested back into the business or distributed as dividends to shareholders.

Dividends are, to put it simply, the incentives that a corporation pays to its shareholders.

Dividend payments are decided by the company's board of directors, and a majority vote of shareholders is also required. The declaration of dividends may also affect the stock price of the company.

How is Dividend income calculated ?

The dividend income is calculated using the dividend payout ratio. The dividend payout ratio is the total amount of dividends in proportion to the net income of the company. The formula is –

 Dividend Payout Ratio = Total Dividends Paid/Net Income or Profit.

 Note: The dividend payout ratio is zero for companies that do not pay dividends and those that pay total net income as dividends.

Impact of Dividend on Share Price

Shareholders cannot influence the company's valuation by giving dividends.
However, dividend payments can reduce the overall equity value of the company. In simple terms, when dividends are paid, they are permanently debited from the company's accounting book.

When a company declares dividends, significant changes occur in the stock prices due to market conditions. The stock price can increase by almost the announced dividend amount upon the announcement. Similarly, there is usually a decline in the stock price to adjust for the dividend amount on the ex-dividend date.

Let's take an example: Suppose a company is trading at Rs.500 per share and declares a dividend of Rs. 10 on the announcement date. As soon as the news becomes public, the share price can increase to Rs. 510.

Now, consider that the stock trades at Rs. 512 per share one business day before the ex dividend date .On the ex-dividend date, the price adjusts to Rs. 502 at the beginning of the trading session. This happens because anyone buying the stock on the ex-dividend date will not receive the dividend.

However, there is no guarantee for this adjustment, but the price is often adjusted according to the dividend amount on the ex-dividend date. Additionally, investors should understand the impact of dividend announcements on share prices and be familiar with important ex-dividend dates.