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What are the Benefits of Investing on Dividend Stocks?
Top 5 Dividend Stocks in India for Investment in 2024
The year 2023 has been a rollercoaster ride for investors in the Indian stock market, with its fair share of ups and downs. In a year marked by uncertainties related to rising interest rates, stubborn inflation, and geopolitical tensions, Indian markets have stood out as a beacon of hope. With a relatively stable currency, strong GDP growth, and resilient corporate profits, India has been a bright spot for investors.
The sentiment in the stock market remains optimistic, but after the losses of 2022 and early 2023, many investors have become cautious. Dividend stocks have provided stability to portfolios during these turbulent times, making them an attractive investment choice. Know about some of the most important dividend stocks on which you can invest in 2024, with assurance about getting decent returns on investments.
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What are the Benefits of Investing on Dividend Stocks?
Investing in dividend stocks offers a plethora of benefits, making them a favored choice for investors seeking stability and income generation. Over the last two years, marked by significant market volatility, dividends have demonstrated their worth. Here is a closer look at the advantages of investing in dividend-paying stocks.
Read and find out about the 15 Dividend Stocks in India that Pay Great Dividends.
Stability in Volatile Markets
Dividend stocks are known for their stability, and they have often acted as ballast in tumultuous markets. While share prices may fluctuate, dividends provide investors with a consistent income stream. This income can be particularly reassuring during market corrections, helping investors to weather downturns while still receiving a portion of their investment in cash.
Steady Income
One of the primary advantages of dividend stocks is the dependable income they provide. Investors, especially retirees, appreciate the regular payments received from their investments. These dividends can be used for living expenses, reinvested, or simply held as cash reserves.
Moderate Returns
While dividend stocks may not yield the sky-high returns that some growth stocks do during bull markets, they offer moderate and more predictable returns. This steady growth, combined with dividends, can lead to significant wealth accumulation over the long term.
Incentive for Earnings Growth
Companies that pay dividends have an added incentive to grow their earnings consistently. When a company commits to paying a portion of its profits to shareholders as dividends, it encourages prudent financial management and sustainable growth. This focus on earnings growth benefits shareholders as it can lead to higher dividends in the future and potentially drive up the stock price.
Historical Outperformance
Research has shown that dividend-paying stocks tend to outperform non-dividend paying stocks over extended periods. This can be attributed to the compounding effect of reinvested dividends and the financial stability and discipline required for consistent dividend payments.
Top 5 Dividend Stocks in India for Investment in 2024
Here is a list of the top 5 dividend stocks that Indian investors should watch in 2024.
1. Coal India
Coal India, the world’s largest coal producer, is a state-owned mining corporation that plays a crucial role in India’s energy sector. Despite the country’s push for renewable energy, coal remains a critical part of India’s power generation. The company has consistently paid dividends since 2004, making it a reliable income source for investors.
In FY23, Coal India paid a dividend of Rs 24.3 per share, offering a current dividend yield of about 8%. With its dominant position in the coal market and continued demand for coal in India, Coal India is a steady dividend stock to consider.
2. Power Grid Corporation
Power Grid Corporation, established in 1992, is a major player in the Indian power transmission and distribution sector. The company, with its monopoly status, has been rewarding its shareholders with substantial dividends over the years. Between 2019 and 2023, the revenue of Power Grid Corporation grew at a CAGR of 6.8%, and its net profit increased by 11.3% on a CAGR basis.
The investments of the company in transmission projects, to meet India’s growing power demand and its involvement in renewable energy and 5G telecom, are expected to drive future revenue and profitability. Power Grid paid a total dividend of Rs 14.8 per share in FY23, offering a current dividend yield of 5.6%.
3. ITC
ITC is a diversified conglomerate with a presence in various sectors, including hotels, FMCG, agri-business, paperboards, and IT. The company is known for its strong brands and global recognition in the agri sector. The dividend history of ITC is impressive, with payouts consistently increasing over the years. In FY22-23, ITC paid out Rs 15.5 per share as dividends, maintaining a high payout ratio of almost 100%.
The flexible capital allocation policy of the company, promising 80-85% of post-tax profits as dividends, makes it a reliable dividend stock. With a current dividend yield of 3.5%, ITC is a strong contender for dividend-focused investors.
4. HCL Technologies
HCL Technologies is one of India’s leading IT companies with a global presence. The company has adapted to emerging technologies like IoT, cybersecurity, cloud computing, and AI, contributing to its robust revenue growth. HCL’s focus on key sectors such as BFSI, manufacturing, and healthcare has positioned it well for future growth.
The revenue and net profit of the company have grown at a CAGR of 12.3% and 9.5%, respectively, over the last five years. HCL Technologies offers a current dividend yield of 3.8%, making it an attractive dividend stock for investors seeking exposure to the IT sector.
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5. Bajaj Auto
Bajaj Auto is a prominent motorcycle manufacturer in India with a strong presence in the premium motorcycle segment. The recent foray of the company into the electric vehicle market with its subsidiary, Chetak Technology Ltd (CTL), has shown promising results. Bajaj Auto’s domestic sales of its electric scooter Chetak surged in fiscal 2023, highlighting the company’s potential in the EV sector.
With a substantial international footprint, serving over 79 countries, Bajaj Auto is the largest exporter of motorcycles and three-wheelers in India. The company offers a current dividend yield of 2.8%. As it capitalizes on the growing EV industry and expands its distribution network, Bajaj Auto remains an interesting dividend stock to watch.
Read on – Top Dividend Stocks in India for Investment in September 2023.
Conclusion
In a market characterized by volatility and uncertainty, dividend stocks have emerged as a source of stability and income for investors. These five dividend stocks – Coal India, Power Grid Corporation, ITC, HCL Technologies, and Bajaj Auto – offer compelling opportunities for investors in 2024. With their strong track records of dividend payments, these companies represent attractive options for those seeking to navigate the unpredictable waters of the Indian stock market while enjoying steady returns. However, it is essential to conduct thorough research and consider your investment goals and risk tolerance before making any investment decisions.
