stock market indian high dividend yield high paying dividend stocks companies

Some Market Facts
We have been so used to seeing the share prices go up month after month between 2003 and 2008 that investing for capital appreciation has become a habit. Investors are still not prepared to accept the reality that the bull-run is long behind us and the market is staring at a lack of good news to take it forward.

The days of momentum buying (buy high and sell higher without looking at the company's finances) are over. Nor is it possible to double or triple your capital in very short time anymore.
Does this mean the end of the road for equities? Not really.

It just means that investors will now have to change their perception about equities. While equities were traditionally bought for capital returns, they could become excellent sources of steady income during bear phases. The lower stock price translates into higher dividend per share, thereby pushing up the dividend yield to attractive levels.

Dividend is a tax-free income in the hand of shareholders.
Dividends are far more profitable today than it would have been in the last four years because the stock prices have crashed in last one year, as result the dividend yield (dividend per share divided by price per share) has gone up. Therefore, the dividend per rupee of investment is much more today than it was earlier but at the other side investors should not aim at accumulating stocks with high dividend yield because such high yields may not be sustainable in case profit falls due to economic slowdown.

The Reason to approach towards high paying dividend stocks
The new financial year is just a week away. Beginning from the middle of April 2009, companies that follow the April-March financial year will start announcing the annual goodies to the shareholders. It makes sense to focus on dividends which are also tax-free in the hands of the investor. In fact, a dividend yield of 6.5% is equal to 10% interest earned over a period of one year because it is taxable income.

Another important aspect of dividends is that they are more stable than corporate profitability. Most companies raise their dividend payout ratios during times of low profitability instead of cutting the dividends in tune with a decline in profitability.

The number of dividend-paying companies in India and the total quantum of dividends would, no doubt, reduce this year compared to FY08. However, if we look back in history, a number of companies had a consistent dividend-paying record over the past 10-15 years regardless of the ups and downs in the business cycle.

The companies mentioned here never missed a dividend pay-out in the past 10 years, have healthy operating cash-flows, comfortable debt-to-equity ratio and haven't performed too badly in the first 9 months of the year. The companies in the automobile, auto ancillary, real estate space and newly listed companies are not included.

Some Probabilities
Let’s take the case of Tata Steel. Its profitability has been hit by the crash in steel prices. Being a commodity business, the steel industry is cyclical and has undergone several ups and downs in the past. However, if we look at the history of the past 15 years, the company has never missed a single dividend. Even when its PAT fell by more than 60% y-o-y in 2002, it cut its annual dividend by just 20% to Rs 4 per share.

The worst of estimates predict a mere 25% decline in Tata Steel's profits in FY09. Even if the company just maintains last year's payout ratio, it would still pay Rs 12.5 per share as dividend. This is a 7.1% yield on the scrip's current market price.

Companies such as MM Forgings, Deepak Fertilisers, Graphite India, Tamilnadu Newsprint and Balmer Lawrie have actually seen a rise in profits in the first 9 months of FY09 over the past year. So they just need to maintain their dividend at the past year's levels to make the cut. Most of the companies mentioned here paid out a very small portion of their last year's profits as dividends.

Please note
The payment of dividend is at discretion of the company management and shareholders should not treat it as their right. Nevertheless, in the current market scenario, dividend payout could and should be a convincing reason for buying shares, rather than being disappointed at the dull stock prices.

Disclaimer - The investors are advised to invest on their own sole discretion.

Following companies have records of consistent dividend-paying over the past 10-15 years

Company	Dividend Yield in %	Current Price	Dividend in Rs.	Dividend Payout Ratio	Ratio*
MM Forging	15.8	39	5.0	21.2	1.1
Graphite India	14.5	24.7	3.0	36.0	0.8
GIC Housing Finance	12.0	35.05	4.0	40.9	1.5
SCI	11.5	76.55	8.5	31.0	0.8
Clariant Chemicals	10.3	190.7	19.0	75.6	0.5
Tata Steel	9.0	196.15	16.0	26.2	1.4
T N Newsprint	8.5	57.55	4.5	12.5	4.5
Tata Chemicals	7.7	139.15	9.0	23.1	2.0
Balmer Lawrie	7.5	239.95	17.0	33.7	0.9
GNFC	7.4	59.95	4.25	18.3	2.3
Tata Investment	7.1	229.50	15.0	29.0	1.0
Deepak Fertilisers	6.7	57.65	3.5	32.5	0.8

Company	Dividend Yield in % as on 11 Feb 2009	Profit Growth in %	Dividend Growth in %
GE Shipping	7.05	44.3	23.0
Graphite India	11.01	32.0	74.2
Madras Cement	6.06	99.4	297.5
SRF	7.63	34.2	21.1
Tata Chemicals	6	37.0	15.6
Tata Elxsi	8.16	35.2	22.5
T N Newsprint	7.45	16.7	10.5
Varun Shipping	10.98	81.8	47.9
LIC Housing Finance	4.59	16.7	15.7
Ambuja Cements	4.7	56.8	43.2

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