Best Monthly Dividend-Paying Stocks in India

6 Aug 2024 , 06:34 PM

Imagine waking up to find extra cash deposited in your account at the start of every month. Sounds like a dream, right? Well, monthly dividend stocks can make this a reality!

These are stocks of companies that believe in sharing a part of their profits with shareholders every single month. Like you get your salary monthly, you can receive regular dividend income by owning such stocks.

Now, who wouldn’t want that? A passive source of cash flows straight into your account on the 1st of every month! No wonder monthly dividend payers are a hit with investors seeking regular income.

And the beauty lies in reinvesting these dividends to accelerate your returns through the power of compounding. So, if you’re looking to supplement your income or supercharge your gains, exploring top monthly dividend stocks in India is undoubtedly worth your time.

Read on to learn about some of the highest-paying monthly dividend stocks you can consider adding to your portfolio.

What are Dividend Stocks?

Investing in stocks allows you to own a slice of a company and benefit from its growth. Now imagine you own shares in a successful business that’s churning out fat profits year after year. Wouldn’t you want your fair share of those booming earnings as a part owner?

Well, dividend stocks allow you to do exactly that!

These are stocks of companies that share a portion of their net profits with shareholders by sending out dividend checks. So, just like you await your paycheck on payday, you can receive regular dividend checks by owning shares of dividend-paying companies!

Dividends are typically paid quarterly. So, once every three months, on the dividend payment date, the company will deposit the dividend amount per share you own into your brokerage account.

Some exceptional companies reward their shareholders more frequently by paying monthly dividends. That’s like receiving your share of profits 12 times a year! Monthly dividends allow your money to compound faster as you reinvest the dividends more often.

Now, you might be wondering how companies determine their dividend amount.

Firstly, dividends are paid out of the company’s net profits. So, there must be sufficient excess profits after paying all the bills. A high-growth startup that’s still investing heavily may not pay dividends.

However, a stable and mature company that makes more profits than it needs to invest will likely pay back shareholders through dividends. The company’s board of directors determines what percentage of earnings to distribute as dividends each year.

In summary, dividends are the cash profits a company shares with its shareholders. By owning dividend stocks, you can earn a steady passive income on top of stock price gains! So, explore high-quality dividend stocks to build a well-rounded portfolio.

Dividends can be paid in two ways:

• Cash Dividend – Cash is credited to your account for every share you hold.

• Stock Dividend – You receive additional shares of the company proportionate to your holding.

Dividends are usually declared as an amount per share – for example, Rs. 10. The more shares you own, the larger your total dividend.

Why Monthly Dividends Are Awesome?

Monthly dividends allow your money to compound 12 times a year instead of just four times with quarterly dividends.

Suppose you invested Rs. 3 lakh in a stock with a 5% dividend yield (Rs. 15,000 in annual dividends on your investment). Here’s how it works:

• Quarterly dividend – You earn Rs. 3,750 every quarter, which can be reinvested to buy more shares.

• Monthly dividend – You earn Rs. 1,250 and reinvest it every month.

In both cases, you accumulate Rs. 15,000 in dividends annually. However, receiving monthly dividends allows you to reinvest earnings more frequently and accelerate your returns through compounding.

Advantages of Monthly Dividends

Some key benefits of monthly dividend stocks include:

• Regular Income: Monthly dividends provide investors with a steady stream of income that can supplement regular earnings.

• Compounding Effects: Reinvesting monthly dividends to buy more company shares increases returns faster.

• Reduced Volatility: Companies that pay stable monthly dividends tend to have less volatile stock prices.

• Diversification: Monthly dividend stocks from various sectors can provide portfolio diversification.

Criteria for Selecting Dividend Stocks

While a high dividend yield is attractive, it alone should not drive investment decisions. Some other critical criteria to consider when picking monthly dividend stocks include the following:

• Financial Stability: Look at earnings growth, debt levels, cash flow, interest coverage ratio and return on equity to ensure the company has a strong financial position to sustain dividends.

• Dividend History: Favor companies with a track record of consistently paying and growing their dividends over the past decade or more.

• Dividend Payout Ratio: The payout ratio tells you what percentage of earnings a company pays out as dividends. Look for companies with payout ratios between 40% and 60%, which leaves room for growth.

• Industry Strength: Some industries, like utilities and consumer staples, are known for dividends due to their stability. However, even cyclical industries can offer good monthly dividends provided the company has strong fundamentals.

Top Monthly Dividend Paying Stocks in India

Dividends can serve as a significant source of income for investors in addition to capital gains from share price appreciation. Many established companies in India have a track record of consistently paying attractive dividends year after year.

Here is an overview of some of the best stocks in India currently based on strong fundamentals and growth prospects:

• Reliance Industries – Reliance is India’s largest company by market capitalisation, engaged in businesses like oil refining, petrochemicals, telecom, retail etc. It has strong earnings growth, zero net debt status, a high ROCE of 26% and a dividend yield of 0.8%.

• HDFC Bank – HDFC Bank is India’s largest private sector bank, with a history of consistent growth and stable asset quality. It has a healthy ROE of 16%, a net NPA of just 0.9% and has consistently paid dividends since 1995.

• Infosys—Infosys is one of the leading Indian IT services companies with a global presence. It has posted consistent growth in the last decade, has robust margins, a return on equity of 29%, and pays attractive dividends.

• ICICI Bank is India’s second-largest private bank, offering various financial services. It has seen vital deposits, advances, and profit growth and has managed its asset quality well. The bank provides a dividend yield of 1.2%.

• Axis Bank—Axis Bank is India’s third largest private sector bank. It has been growing its retail loans and deposits well. The bank has also enhanced its asset quality, with a net NPA of just 0.5% and a dividend yield of 1%.

• Larsen & Toubro – L&T is a diversified conglomerate engaged in infrastructure development, construction, manufacturing, etc. It has a strong order book and a healthy balance sheet and offers a dividend yield of 1.2%.

• Cipla – Leading Indian pharmaceutical company with a strong presence in domestic and export markets. Cipla has a revenue of over Rs 17,000 crores and a net profit margin of 17%. It offers a dividend yield of 1.2%.

• TCS – Largest Indian IT services and consulting company with over 600,000 employees. TCS has posted consistent growth and robust margins. Revenue grew 7% last year, and net margin stands at 25%.

• HCLTechnologies – Major Indian IT services firm serving large enterprises globally. HCL Tech has grown revenue and net income steadily over the past decade. Revenue is over $11 billion with a net margin of 17%.

• Apollo Hospitals – Leading private healthcare provider in India operating a chain of hospitals. Apollo has consistently grown revenue and profits. Revenue rose 16% last year with a net margin of 9%.

• Titan Company—Titan is a top Indian watch and jewellery company with brands like Titan, Tanishq, Fastrack, etc. Titan enjoys leadership in its segments and has substantial brand value. Its revenue grew 22% last year, and its net margin was 11%.

• Britannia Industries- Investors find Britannia Industries, a major participant in the food sector, intriguing due to its consistent dividend payments and sound financial standing. It declared a substantial dividend of Rs 72 per share in 2023, or 7200.00% of the value of its shares. At Rs 4911.25 per share right now, the dividend yield is 1.47%.

• Dalmia Bharat Ltd– Through its Cement division and other sectors, which include investment and management services, Dalmia Bharat Limited, an Indian cement maker, principally provides several grades of cement and related products.

Its speciality cement are used in the construction of nuclear power stations, oil wells, and railroads, among other diverse applications. Dalmia DSP, Konark, and Dalmia Magic are among the brands.

In summary, these companies have a solid competitive position in their respective industries, have demonstrated consistent growth and profitability, and are in sound financial health. However, investors should still evaluate company-specific fundamentals before investing.

Risks and Considerations 

While dividend stocks have benefits, they also come with some risks to consider:

• Dividend Cuts – If the company runs into financial trouble, dividends can be reduced or suspended.

• Overvaluation – High-yielding stocks may be overvalued and bound for a correction.

• Interest Rates – Rising interest rates could make fixed income more attractive.

• Taxation – Dividends are taxable income for investors. Taxes can reduce net returns.

• Concentration risk – Too much focus on high dividend yield stocks can make the portfolio risky.

Assessing risks and having realistic return expectations is crucial when investing in dividend stocks. Maintaining a well-diversified portfolio across asset classes is critical.

How to Invest in Dividend Stocks?

Dividend investing is an effective strategy for investors seeking a smooth income stream and long-term capital appreciation. However, not all dividend stocks are equal—you must be selective to construct a high-quality dividend portfolio. The key is conducting thorough research and analysis on potential dividend payers before hitting the buy button.

Start by understanding the company’s financials inside out. Dig into the annual report, financial statements, and ratios to assess the dividend-paying capability. Check metrics like payout ratio, free cash flows, revenue growth trends, and earnings stability. This will give you confidence that the business can sustain those juicy dividends for years.

Next, inspect the dividend track record over at least 5-10 years. Favour stocks with a history of consistently raising dividends year after year. That shows that shareholder-friendly management is committed to dividend growth. Be wary of stocks with a choppy dividend history, as that indicates an unreliable income stream for your portfolio.

Remember to evaluate the stock valuation, too. Use metrics like the P/E ratio to ensure you don’t overpay for the shares relative to growth prospects. You aim to lock in an attractive dividend yield plus upside potential from share price appreciation.

Crafting a diversified portfolio with monthly dividend payers across various sectors also helps mitigate risks effectively. Reinvesting the dividends through a Dividend Reinvestment Plan (DRIP) can turbocharge your returns through the power of compounding.

Monitor your holdings by tracking financial news flows, analyst reports, and corporate developments. Tweak your portfolio periodically to align with your income needs and risk profile.

With a disciplined approach to regular research, valuation analysis and portfolio maintenance, dividend stocks can deliver a healthy stream of passive income straight to your account every month.

Conclusion

Dividend stocks play an important role in portfolio construction for income investors. The stocks highlighted above have a consistent history of monthly dividend payments and strong company fundamentals. A well-diversified portfolio of monthly dividend payers can provide stability and regular income.

As with any investment, it is vital to assess risks and suitability before making investment decisions in dividend stocks based on individual financial conditions and goals. Investors should conduct thorough research and may consider consulting a financial advisor before investing.

FAQs on Monthly Dividend-Paying Stocks

1. What are the benefits of monthly dividend stocks? 

Regular passive income, faster compounding through reinvestment, reduced volatility, and diversification.

2. What dividend yield is good in India?

1-3% is decent, and above 4% is more attractive for dividend investors seeking higher income. Compare yields within sectors.

3. What is an ideal dividend payout ratio?

A 40-60% payout ratio is reasonable for most stable companies. Below 20% indicates a low payout; above 80% may be unsustainable long-term.

4. Are dividends taxable income in India? 

Yes, dividends beyond Rs 10 lakhs per fiscal are taxable. Factoring taxation impacts overall returns.

5. What are the critical risks of dividend investing?

Dividend cuts if company earnings fall, overvaluation if high dividend yield stocks become expensive, rising interest rates making fixed income attractive, concentration risk if overexposed, taxation reducing net returns.

6. How do you pick the best dividend stocks?

Analyse financial health, dividend history, payout ratio, valuation, and industry strength. Favour companies with consistent dividend growth over five years.

7. How can investors maximise monthly dividend returns?

Reinvest dividends through Dividend Reinvestment Plans to benefit from compounding. Build a diversified portfolio across sectors. Monitor holdings regularly. Align investments with income needs and risk profile.