Passive Income Made Simple: Best Indian Dividend Stocks12-min read

Introduction to Indian Dividend Stocks in December 2024

One of the most popular types of investment that people in India tend to make are investments in dividend stocks. Dividend stocks are stocks that reward the shareholders who bought them by giving them a share of the company’s profit. However, it is important to note that not all companies offer this kind of reimbursement and even when you find the ones that do, you should look for the best dividend paying stocks in India in order to get the most out of it.

The Indian market is filled with great stocks, and all you need to do is find the best dividend stocks among them. For example, companies such as Bharat Petroleum Corporation Ltd, Indian Oil Corporation Ltd., Indus Towers Ltd, Hindustan Petroleum Corporation Ltd, Coal India Ltd, SJVN Ltd, REC Ltd, Oil India Ltd., Power Finance Corporation Ltd., and many others are all great options. Bharat Petroleum Corporation Ltd., for example, has the highest dividend yield of 17.03%, making it one of the stocks with the best dividends.

The financial industry did suffer a significant blow in 2022 for a variety of reasons, but the majority of experts are confident that consumer sentiment will see an uptick in 2023, thus causing an increased performance of the Indian stock market. As for the key areas to pay attention to, those include banking, automobiles, company stocks, real estate, and energy.

In This Guide:

1. Why Dividend Stocks?
2. Factors to Consider When Choosing Dividend Stocks
3. Top Indian Dividend Stocks to Consider
4. Penny Stocks: Exploring High-Risk, High-Reward Investment Opportunities
5. Choosing the Right Broker for Investing in Indian Dividend Stocks
6. Top Broker Options for Indian Dividend Stocks
7. Tutorial: How to Invest in Indian Dividend Stocks
8. Conclusion

Why Dividend Stocks?

Finding stocks with the best dividends is fairly easy, but you might be wondering — why dividend stocks in the first place?

Well, the reason is the fact that they can be a very powerful addition to any portfolio. On top of that, they pay regularly, thus representing a source of passive income.

Buying the best dividend stocks also means that you are investing in financially stable companies. Firms that can afford to pay dividends are generally financially stable, and they perform well. They have a proven track record of generating profits consistently, which means that you throw your money away if you invest in them. Inexperienced investors often invest in companies that sound good on paper, only for them to eventually fail, and their shares lose their value. Companies that pay dividends can protect their investors from that through their stability, which increases the sense of security, and allows investors to invest long-term without fear.

As mentioned, some of the best dividend paying stocks can provide you with a fairly decent (and more importantly, regular) income stream. Dividend stocks offer regular income to their investors, which you can use to supplement other sources of income. If you have $100 (or equivalent in another currency), you can only spend them on something once. Investing them in the best dividend stocks in India will mean that you get paid repetitively — not that same amount, of course, but you will make it in time. After that, everything else is pure profit. This can be a very useful thing for retirees or those who are approaching retirement. Of course, the key here is to find stocks with the best dividends, so you will be sure that the company will pay you well and that it will survive various financial hardships that sometimes strike the financial industry.

If you need more reasons to invest in the best dividend paying stocks in India, how about the fact that they represent a great inflation hedge? That is exactly the type of financial hardships that we had in mind. Big, powerful companies tend to boost their dividend payouts over time in order to keep up with rising prices. So, while salaries tend to stay the same during inflation, which means that you get less money, dividends will always pay roughly the same value.

The best dividend stocks in India also have great potential for long-term growth. If a company has reached the stage where it can afford to use a portion of its profit to pay dividends, then that means that it must be well-established. As such, it likely has a strong market position, and it can provide investors with long-term growth potential. Its share price will go up, it will earn more, and it will be able to pay more to its shareholders.

Finally, the last reason why you should consider investing in the best dividend paying stocks in India is the fact that it helps with your diversification. We have already established that stocks with the best dividends come from strong, stable companies. This is the type of firm that all experts recommend investing in. Such companies are a great choice for long-term investments, as they have experience and knowledge regarding the market and how to survive within it. Most likely, their product is also something that is in high demand and will likely stay in demand for years, decades, or maybe even longer. So, if you wish to diversify your portfolio by investing in strong firms, you should look for the best dividend paying stocks first.

It is also noting that stocks with the best dividends can be found across a range of sectors and industries, so you can further reduce risk. If you invest across five strong sectors, even if one of them fails in some future twist of financial markets, the other four will easily make it possible for you to profit. 

Factors to Consider When Choosing Dividend Stocks

Earlier, we said that finding the best dividend stocks in India is a fairly simple matter. This can be true if you are experienced enough to know what you are looking for. To put it simply, the main factors to consider when choosing the best dividend stocks in India are the following:

Dividend Yield vs Dividend Growth

Naturally, in order to earn the most, you should focus on finding the best dividend paying stocks in India. The more they pay per stock, the quicker you can earn back your investment, and then more on top of it. You will still remain the owner of the stock, meaning that you can still retrieve your original investment at any time. Apart from that, you should also check out dividend growth. Typically, companies set aside a certain percentage of their profits, so if their profits have gone up — so will the dividend. In other words, the best dividend stock is the one that pays more and more each time, ideally.

Historical Dividend Payout and Trends

Another thing to pay attention to when choosing the best dividend paying stocks in India is their historical performance. This can tell you a lot, such as whether the company is earning better now than it did before or are the payouts now lower than they were in the past. You should also study how much the best dividend stocks pay per month, as you might find that there are certain trends, such as the company making greater earnings during certain periods of the year.

Financial Stability of the Company

Of course, checking out the company’s financial stability is one of the most important factors, not only when you are trying to find the best dividend stocks in India but also for any kind of investment. When it comes to dividends, financially stable companies will keep paying equal or higher amounts, while unstable firms would pay different, volatile amounts each time, and sometimes they might even have to skip the payments when they perform badly.

Industry Trends and Forecasts

Industry trends and forecasts are also crucial when searching for the best dividend paying stocks. Forecasts can tell you what to expect from the company of your choice and its stock price. The more in-depth ones can also predict the company’s earnings and even how much you could get in dividends by holding onto their stock. If you are confident that you have found the best dividend paying stocks, you can look into how they are affected by industry trends. As always, when it comes to investing, information is key, so keep that in mind.

Market Conditions and Economic Outlook

Even the best dividend stocks in India can be strongly affected by the changing market conditions. The market is entirely controlled by supply and demand, which are, in turn, affected by sentiment. In other words, by knowing how investors feel about the best dividend stocks that you have chosen, you can assume the stock’s and company’s performance, which directly affects your earnings. On a larger scale, the entire economic outlook could also have an effect on the best dividend paying stocks. In case the economic outlook is not the best, you can assume that the company, its earnings, and maybe even its stock value would be affected, which would likely lead to a drop in how much the firms can afford to pay to their stockholders.

Top Indian Dividend Stocks to Consider

When it comes to the best dividend paying stocks to consider, it is important to remember that their performance over time changes, so the stocks that performed excellently last year might not necessarily perform equally well this year or the next year. This is why we have selected the stocks that have had the highest dividends over a 10-year period, hoping to find companies that offer the best dividend stocks with consistent performance.

The top one to consider under these circumstances is Bharat Petroleum Corporation Ltd (NSE: BPCL). This is a company from the refineries industry, and its average dividend yield for the mentioned period is 17.03%, with 1-year returns of around 13.75%. The stock has reached its all-time high at INR 542 back in October 2017, and while it has seen several surges since, it corrected after each one. At the time of writing, it sits at INR 330.30.

The next on the list is the Indian Oil Corporation Ltd. (NSE: IOC), which is also in the refineries industry. Its dividend yield sits at around 11.2%, while 1-year returns were actually at 22.44% on average. One of the best dividend stocks in the country, its shares reached an all-time high of INR 151 back in August 2017. However, the stock’s current price of INR 78.6 is still significantly higher than ever before the 2017 high.

In the third place, we have Indus Towers Ltd (NSE: INDUSTOWER), which is actually a firm in the telecommunications industry operating as a service provider. The company holds third place because of an average dividend yield of 9.38% and 1-year returns of 7.33%. However, at the time of writing, its stock price is spiraling down, currently sitting at INR 149.40. Meanwhile, its ATH was achieved in 2015, when it reached the price of INR 480.

The fourth is Hindustan Petroleum Corporation Ltd (NSE: HINDPETRO), which is also in the refineries industry. With a dividend yield of 8.83% and 1-year returns of 22.1%, the company holds fourth place on our list. Like our previous entries, it saw an all-time high in mid-2017, when it reached the price of INR 488. At the time of writing, however, the price is halved, sitting at INR 230.35, which is approximately halfway between its all-time high and the value it held before the surge that started in 2013 and ended in 2017. While it has seen certain fluctuations over the last year, its price is relatively stable in the vicinity of INR 240.

The fifth and final one on the list is Coal India Ltd. (NSE: COALINDIA). This is a company from the Mining & Minerals industry, and it offers a dividend yield of 8.45%, with 1-year returns of 4.41%. Its stock price has been dropping between 2015 and 2020, but as of October 2020, the share price has been rising steadily, starting at INR 115.70 and reaching INR 246 in October 2022. In 2023, the stock price corrected slightly, sinking to its value at the time of writing of INR 219.90.

Penny Stocks: Exploring High-Risk, High-Reward Investment Opportunities

If you are on a budget, penny stocks are low-priced shares of small-cap companies, typically trading below INR 10 per share. These stocks can offer investors high potential returns due to their low entry price and the possibility of significant price fluctuations. However, investing in penny stocks also comes with higher risks, as they are more susceptible to market volatility and may lack the financial stability of larger companies. These stocks could even incentivise new investors with alluring dividends, which – if the start-ups offering them grow in the long-term – could produce high returns for their series A investors.

For investors with a higher risk appetite, penny stocks present an opportunity to capitalize on rapid growth and potentially substantial returns. Due diligence is essential when selecting penny stocks, as investors should carefully analyse the company’s fundamentals, industry prospects, and management team. A thorough understanding of the inherent risks and potential rewards can help investors make informed decisions when venturing into this high-risk, high-reward segment of the market.

It is crucial to remember that penny stocks should only comprise a small portion of a well-balanced investment portfolio. Investors can mitigate risks by diversifying their investments and allocating funds to more stable assets, such as blue-chip stocks and dividend-paying companies. This balanced approach can help investors navigate the unpredictable nature of penny stocks while maximizing their potential for long-term financial growth. For such investments, thorough research is mandatory, in order to identify the best cheap stocks to buy.

Choosing the Right Broker for Investing in Indian Dividend Stocks

Selecting the right broker is a crucial step when investing in dividend stocks. A reliable broker not only facilitates seamless transactions but also provides the tools, resources, and support necessary to make informed investment decisions. Below is a guide to help you choose a broker tailored to your needs, with a spotlight on AvaTrade and other suitable options.

Key Factors to Consider When Choosing a Broker for Dividend Stocks

1. Regulatory Compliance and Reputation

Ensure that the broker is registered with reputable regulatory bodies such as the Securities and Exchange Board of India (SEBI) or international regulators like the Cyprus Securities and Exchange Commission (CySEC). Regulatory oversight ensures your investments are secure and the broker adheres to strict operational standards.

2. Competitive Fee Structure

Dividend investing often involves long-term holding, so high brokerage fees can erode returns over time. Look for brokers offering:

• Zero or Low Commission on Trades
• Transparent fee structures without hidden charges.

3. Access to Indian and Global Dividend Stocks

A good broker should provide access to a diverse range of dividend-paying stocks from both Indian markets and global exchanges. This allows you to build a well-diversified portfolio.

4. Research and Educational Tools

Investing in dividend stocks requires a thorough understanding of financial statements, payout histories, and market trends. Look for brokers offering:

• In-depth research reports.
• Financial analysis tools.
• Educational resources such as webinars and tutorials.

5. User-Friendly Platform

Ease of use is critical for both beginners and seasoned investors. The trading platform should feature:

• Intuitive navigation.
• Advanced charting and analysis tools.
• Mobile accessibility for trading on the go.

6. Customer Support

Reliable customer service ensures prompt assistance with account issues, trading queries, or technical difficulties. Opt for brokers with 24/7 support via multiple channels, including chat, email, and phone.

Top Broker Options for Indian Dividend Stocks

AvaTrade

Overview:
AvaTrade is a globally trusted broker offering a wide range of financial instruments, including Indian dividend stocks. Known for its user-friendly interface and robust educational resources, AvaTrade is ideal for both beginners and experienced investors.

Key Features:

• Zero Commission on Stock CFDs: No fees on trades, helping investors maximise returns.
• Advanced Trading Platforms: Access to MetaTrader 4, MetaTrader 5, and AvaTrade’s proprietary WebTrader.
• Comprehensive Educational Resources: Tutorials, webinars, and market analysis reports tailored for dividend investors.
• Regulated by Multiple Authorities: Including CySEC and the Central Bank of Ireland.

Why Choose AvaTrade for Dividend Stocks?
AvaTrade’s zero-commission structure and access to a wide range of dividend-paying stocks make it a cost-effective choice for long-term investors. Additionally, its platform supports advanced tools for analysing dividend yields and payout ratios, empowering investors to make informed decisions.

Zerodha

Overview:
India’s leading discount broker, Zerodha, offers a cost-effective solution for dividend stock investors, with its innovative trading platform, Kite.

Key Features:

• Low Brokerage Fees: Minimal costs for equity investments.
• Comprehensive Tools: Advanced charting features and seamless fund management.
• Regulated by SEBI: Ensures investor protection and operational transparency.

Why Choose Zerodha?
Zerodha’s low-cost structure and powerful analytical tools make it an excellent choice for investors focused on domestic dividend stocks.

ICICI Direct

Overview:
A full-service broker providing access to Indian and international markets, ICICI Direct is well-suited for investors seeking comprehensive services.

Key Features:

• Integrated Banking and Trading Services: Allows seamless fund transfers.
• Expert Research: Access to detailed reports on dividend stocks.
• Strong Customer Support: Ensures assistance at every stage of your investment journey.

Why Choose ICICI Direct?
ICICI Direct offers in-depth research and personalised advisory services, making it ideal for investors who prefer a guided approach.

Tutorial: How to Invest in Indian Dividend Stocks with AvaTrade

Opening an online trading account with AvaTrade is a seamless process that allows you to access a wide range of financial instruments, including Indian dividend stocks. Below is a step-by-step guide on how to set up your account and start trading:

Step 1: Visit the AvaTrade Website

Navigate to the AvaTrade website and click on the “Register” or “Open an Account” button. This will direct you to the account creation page.

Step 2: Provide Your Personal Information

Complete the registration form by entering your personal details, including:

• Full Name
• Date of Birth
• Email Address
• Phone Number

You’ll also need to choose your preferred account currency and trading platform (e.g., MetaTrader 4 or AvaTrade’s proprietary platform).

Step 3: Select the Type of Account

AvaTrade offers a range of account types tailored to different trading needs:

• Standard Account: Suitable for most traders.
• Demo Account: Ideal for beginners to practice trading without risking real money.
• Professional Account: For seasoned traders meeting specific criteria.

Choose the account type that aligns with your experience level and trading goals.

Step 4: Verify Your Identity

To comply with regulatory requirements, AvaTrade will ask you to submit proof of identity and address. Required documents typically include:

• Aadhaar Card or PAN Card (for identity verification)
• Utility Bill or Bank Statement (for address verification)

Upload these documents directly through AvaTrade’s secure platform. Verification is typically completed within 24 hours.

Step 5: Fund Your Trading Account

Once your account is verified, you can deposit funds using one of AvaTrade’s multiple payment options:

• Bank Transfers
• Credit/Debit Cards
• E-wallets (such as Skrill or Neteller)

AvaTrade offers competitive minimum deposit requirements, making it accessible for traders of all levels.

Step 6: Start Trading Indian Dividend Stocks

With your account funded, you can begin trading. AvaTrade’s platform provides access to various order types to optimise your trading strategy:

• Market Orders: Execute trades at the current market price.
• Limit Orders: Specify the maximum or minimum price at which you’re willing to buy or sell.
• Stop-Loss Orders: Protect against significant losses by automatically closing positions at a predetermined price.

Utilise AvaTrade’s advanced tools, such as technical indicators and real-time data, to make informed trading decisions.

Step 7: Monitor and Manage Your Investments

AvaTrade offers a comprehensive dashboard to track your portfolio, analyse performance, and adjust your strategy as needed. Take advantage of their educational resources, including webinars and tutorials, to continually refine your trading skills.

Conclusion 

As we have seen, India is filled with opportunities that let you invest in stocks with the best dividends. By doing so, you can secure passive income on a monthly basis, which can certainly be helpful right away, and it could mean a large difference in your monthly income after retirement. The best dividend stocks in India can be found on a number of brokerages, including the ones mentioned earlier in this guide.

There are plenty of reasons why you should consider investing in the best dividend paying stocks in India, some of which were discussed above, as well. However, in order to truly find the best dividend stocks, you must pay attention to the mentioned factors that need to be considered when making your choice. 

Obviously, there is no full-proof way to know which company will stay successful in the long term, as the market could see a major change that could turn the situation around for any firm. You can diversify your portfolio to reduce the chance of things going wrong, but ultimately, it is all a big game where you must make educated decisions, and for that — just like for selecting the best dividend paying stocks — you need information and research.