General investing wisdom dictates that buying stocks that pay high dividends is a good idea.
A dividend is a cash payout that a company gives to its investors -- often regularly -- typically from the part of its profit it decides to not plough back into its business. A dividend yield is a percentage number that denotes the return for every Rs 100 invested in the company.
The idea behind investing in high dividend-paying companies is two-fold. Investors are assured of an additional return over and above any capital appreciation (rise in stock price) that they get. Plus companies that tend to pay regular dividends also likely generate stable profits and may be better run (important factors for capital appreciation).
Both arguments, however, are not foolproof. For instance, investing in a high dividend-paying company will not help an investor if its share price suffers. Additionally, a company may make high dividend payouts only to assuage its investors, or it possibly generates a lot of cash flows currently but sees limited investing-for-future-growth opportunities.
In India, the government often seeks high dividends from cash-rich, state-run companies as a means to plug its revenue gap. This means that a high dividend-paying company is not necessarily a good investment prospect.
But in some markets, the idea has merit. In fact, in the US, there is an index called Dividend Aristrocrats constituting companies whose dividend payouts have been rising for years. Needless to add, this index has done better than other indexes for long periods of time.
So as part of the latest datawatch series, here's a list of companies whose dividends have been at least 2 percent and rising for each of the last three fiscal years. Only companies with market cap greater than Rs 1,000 crore have been considered.
Only 14 companies make the cut.
Disclaimer: Through this series, Moneycontrol seeks to highlight interesting financial data of companies. This article should not be treated as a recommendation to buy or sell stocks. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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