How India’s Top Dividend Paying Stocks Today Might Disappoint You Tomorrow

Dividends can be an excellent source of income. Especially in this volatile market, when share prices are not moving.

And why don’t dividends follow investing? split paid stock There is a certain appeal to them. After all, when fixed deposit rates are so low, comparing stocks with high dividend yields sounds great.

In addition, dividends are deposited directly into your bank account. So for investors, these direct payments not only act as a source of income but also as a source of relief.

But keep in mind that dividends are only sustainable to the extent that the company’s earnings are sustainable.

If for some reason, earnings decline, these high dividends today may count for nothing.

Usually, in such scenarios, the dividends disappear. As companies pay dividends out of their profits after capital expenditures, debt repayment and working capital are paid.

And therefore, even a dividend payer can become a dividend dude.

So, with that in mind, we highlight some of the stocks that could be impacted.

#1 BPCL

First on our list is the oil major, Bharat Petroleum Corporation Limited (BPCL).

India’s second largest refining and marketing company by volume, BPCL operates two major refineries in the country located at Mumbai and Kochi. The company holds a 12.5 per cent stake in Petronet LNG and a 22.5% stake in Indraprastha Gas – the city gas distribution monopoly in Delhi.

The company ranks high on the list of top dividend-paying companies in the country, with a five-year average dividend yield of 4.5%.

However, in the financial year ending March 2022, BPCL paid dividend 16, amounting to a 4.8% dividend yield. These came on the back of higher profitability reported by the company.

But profits due to higher dividend payouts are unlikely to persist. The heavy marketing loss would offset any higher refining margins the company would bear. Besides, the impact of inventory on account of reduction in excise duty will also lead to further reduction in profitability.

In such a scenario, companies can cut their discretionary spending, including higher dividend payouts.

Hence, unless crude oil prices calm down or retail fuel prices rise, BPCL will be under pressure from all sides.

#2 IOC

Next on our list is Indian Oil Corporation (IOC).

IOC is the second largest player in the domestic petrochemical market in the country. The company owns and operates 11 of India’s 23 refineries with a combined refining capacity of 80.7 MTPA.

The company, like its peers in the oil and gas sector, also paid high dividends in the financial year ending March 2022. dividend per share 11.4 amounts to a dividend yield of 15.7%, which is much higher than its 5-year average dividend yield of 5.3%.

The higher dividend payout was a reward for shareholders, a way of sharing the supernatural profit generated by the company in fiscal year 2022.

IOC reported record-high gross profit margins and turned last year’s losses into massive gains.

But given the potential for declining profits in the near term, higher dividend payouts may not continue.

The profit in the refining segment will be offset by the company’s marketing losses on petrol, diesel and LPG bore. Also, one-time inventory hit due to excise duty cut will further impact profitability.

Therefore, in view of this, IOC may put a hold on its higher dividend payout.

#3 Tata Steel

Third on our list is Tata Steel.

The company is engaged in the business of mining, steelmaking and finished steel as well as sales of value-added products and solutions. It saw total sales volume of over 33 million tonnes per annum (MTPA) in the financial year 2022.

Tata Group’s steel arm distributes huge dividend of 51 per share, resulting in a dividend yield of 4.7% in fiscal year 2022. That number was higher than its 5-year average dividend yield of 2.5%.

Financial year 2022 was remarkable for the steel industry, where the entire sector reported its best financial performance. All this was led by a boom in the steel cycle, which allowed steel companies to expand their business.

Tata Steel’s revenue grew by 55% in FY22, while profit margins grew to 26% (compared to 18% during the same time last year). This stellar performance got limited to the high dividend payout.

As good as its performance has been, it is not likely to continue in the near future.

While volumes will decline sharply due to the imposition of export duty on exports, higher costs will reduce profitability. Therefore, there is a good chance that the company may roll back its liberal dividend policy.

#4 JSW Steel

Fourth on our list is JSW Steel.

JSW Steel is one of the largest steel companies in India. The company’s annual sales are 18 MTPA.

The company’s revenue has grown at a CAGR of 17.2% over the last five years due to capacity addition, rising domestic economic activity and rising steel prices. Profits have grown at a CAGR of 42% over the same period.

Steel major rewarded its shareholders by generously distributing dividend 17.2 per share. This hefty payout equates to a dividend yield of 2.8%, which is more than double its 5-year average of 1.2%.

Like its peers, the company enjoyed a stellar performance in FY 2022. Total revenue increased by 81% compared to the same period last year, while profit increased by 1.5 times.

However, this trend is not likely to continue next year as well. The company’s profitability is most likely to be affected by rising cost pressures and lower volume growth.

These headwinds could prevent generous dividend payments from now on.

#5 Power Grid

Last on our list is Power Grid. Power Grid is India’s largest power-transmission firm. It owns and operates 173,243 circuit km of transmission lines and over 300 electrical substations.

In the financial year ending 2022, Power Grid issued a special dividend to its shareholders. This special dividend was in addition to its regular dividend, taking the total dividend to Rs 14.8 per share. The total outlay resulted in a dividend yield of 7%, which is much higher than the five-year average of 4.1%.

In addition to regular dividends, sometimes a company may issue what is known as a special dividend. Special dividends are an easy way to return excess money to shareholders every few years.

These types of dividends are usually not recurring in nature. So, there is a good chance that Power Grid may not pay the same amount next year.

However, Power Grid is increasing its dividend payout gradually. The dividend yield has been increasing from 2.7% to 7% over the past five years.

For more information, see Power Grid’s financial fact sheet and quarterly results.

in conclusion…

high dividend paying stocks Price can be a great starting point for bargaining. However, you should never invest in a stock solely on the basis of its dividend.

Dividend payment, a discretionary item, is highly dependent on a company’s earnings and management policy. And both of these factors can change.

In addition, even if a stock’s dividend payout has been high, investors can still lose money due to fluctuations in stock prices.

Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.

(This article is syndicated from) equitymaster.com,

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