Dividends, dividends, and more dividends! Three high-yield stocks for you today

The dividend yield is just a simple percentage of how much a company pays out in dividends each year relative to its stock price. (Image: Pixabay)
The dividend yield is just a simple percentage of how much a company pays out in dividends each year relative to its stock price. (Image: Pixabay)

Summary

Why you should change your perspective about dividend investing and three high dividend yield stocks in the current market.

For those who are new to the world of dividend investing, a dividend is a distribution of some of the earnings of the company to its shareholders.

The dividend yield is just a simple percentage of how much a company pays out in dividends each year relative to its stock price.

For example, if the stock price of a company is 100 and the company issues 5 in dividends, then the dividend yield is 5%.

Consider the example of the following companies which have some of the highest dividend yields in the BSE 500 index:

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If you would have invested 100,000 equally across these companies, you would have received on average around 3,000 on each stock last year just as dividends.

This is not including any gains you would have made holding on to the stock.

And voila… here lies the allure for dividend investing.

This is considered the holy grail of investing…

If you have sufficient capital and allocate to these high-yielding dividend stocks, not only will you get a steady cash flow in the form of dividends, but you could also potentially enjoy the benefits of capital appreciation.

Keeping that in mind, let’s look at the top 3 high dividend yields stocks in the current market.

These stocks are filtered using the Equitymaster stock screener.

Apart from high dividend yield, these companies have strong growth prospects in place, making them strong contenders for capital appreciation as well.

Take a look…

1: Oracle Financial Services Software (OFSS)

How often do you see a highly priced stock command a high dividend yield?

It’s very rare, right?

Trading at 8,800 per share, Oracle Financial Services (OFSS) currently commands a dividend yield of 2.6% at the current price.

In financial year 2023, the company paid out a dividend of 225 per share.

In the current financial year (2023-24), OFSS has so far declared an interim dividend of 225 per share.

Chances are, owing to the stellar performance in the year gone by, and the AI company’s best year in terms of stock performance as well, OFSS may declare a special dividend this year.

The proof is in the pudding… IT companies usually declare big dividends or reward shareholders by way of buybacks.

In case of OFSS, the company has increased its dividend payout consistently throughout the years.

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Starting 2024, OFSS share price woke up from a long underperformance and almost doubled from 4,300 at the start of 2024 to over 8,800 at present.

Initially, the stock price moved up after the IT company posted strong set of numbers in its December 2023 quarterly earnings.

OFSS reported a 69.4% year-on-year (YoY) jump in net profit at 740 crore for the third quarter that ended 31 December 2023.

Revenue from operations spiked 26% to 1,820 crore as against 1,450 crore reported in the corresponding period last year.

The company's MD and CEO Makarand Padalkar said that license fee signings aided the margins during the quarter.

"Our license fee signings were US$ 49.5 million across our product lines for both Cloud/SaaS and on-premises deployment modes. For the nine months ended December 2023, our license signings were US$ 117.4 million, 76% higher than the corresponding period last fiscal."

During the quarter, the company's operating margin came in at 46.1% while net profit margins came at 40.6%.

OFSS signed a landmark cloud deal with Navy Federal Credit Union, USA, during the quarter.

The company's management also highlighted that they continue to see a robust deal pipeline across all the regions.

With the adoption of artificial intelligence (AI) in every industry, the future of Oracle Financial looks promising.

A steady increase in profit could result in OFSS paying even higher dividends going forward.

In recent years, OFSS has made significant investments in rapidly moving its solutions to cloud and launched solutions for Liquidity Management, Virtual Account Management, and Supply Chain Finance as cloud services, much ahead of its peers.

The adoption of AI in financial services andfintech companiesis expected to grow at a CAGR of 23.37% in the next two years, which is a huge prospect for Oracle Financial as a leader in the AI space.

2: Banco Products

Second on the list isBanco Products.

Trading at 600 per share, Banco Products currently commands a dividend yield of 3.6% at the current price.

The company manufactures and supplies engine cooling modules and systems for the automotive and industrial markets.

Its products include radiators, charged air coolers, fuel coolers, oil coolers, and metal layered gaskets.

The company has paid dividends to its shareholders every year since 2001.

 

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Banco Products has remained debt-freefor the last five years, indicating low-interest obligations, which explains the high dividends.

In financial year 2023, the company paid out a dividend of 22 per share. So far for financial year 2023-24, the company has paid an interim dividend of 20 per share.

Given its good performance in the current financial year, there’s a good chance that Banco Products may declare a final dividend as well.

In the last five years, the company's revenue has grown at a CAGR of 8.3%, driven by growth across all products. The net profit also grew at a CAGR of 23.1%.

Going forward, the company plans to focus on developing a new range of products for electric vehicles (EVs) and expand its base in India and international markets.

 

3: Power Grid Corporation

Last on this list is Power Grid Corporation.

Trading at 165 per share, Power Grid currently commands a dividend yield of 5.3% at the current price.

Here’s a table showing the power company’s dividend payout over the years

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In financial year 2023, the company paid a dividend of 14.8 per share.

So far for the current financial year, Power Grid has paid two dividends of 4 and 4.5 each, respectively in November 2023 and February 2024.

In the past five years, the dividend per share has averaged more than 10.

So, there’s a good chance that Power Grid may continue its dividend spree by announcing a final dividend soon.

It even rewarded shareholders with bonus shares in September 2023 in the 1:3 ratio.

From humble beginnings in 1989, it has grown to become the largest power transmission company in India.

By carrying electricity through its nationwide grid network, the company acts as a connecting factor between power-generating companies and power-trading companies.

When it comes to getting renewable energy to the home of every Indian, it has a pivotal role to play in the coming decades.

The company also ventured into EV charging infrastructure and is setting up charging stations across the country.

In the December 2023 quarter, the company added transformation capacity, commissioned substations and even several transmission lines.

As of December 2023, it has an order book (work in hand) of 77,770 crore

Going forward, the company plans significant investments in expanding the transmission network with a focus on interstate and intrastate projects. This aims to connect renewable energy sources, improve grid stability, and facilitate electricity trading.

Snapshot of High Dividend Yield Stocks on Equitymaster Stock Screener

Apart from the above, here is the list of stocks with high dividend yields.

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Please note that these parameters can be changed according to your selection criteria.

This will help you identify and eliminate stocks not meeting your requirements and emphasise those stocks well inside the metrics.

In Conclusion

Since the dividend yield for these stocks will keep fluctuating depending on valuations, you need to invest in the stocks when the yield is at least 2%. 

Besides the dividend yield, the other valuation ratios, such as PEG (price to earnings growth) can help keep a check on margin of safety.

Apart from that, we are shifting into an era of growth companies... so the next time you look at a potential investment based on the dividend hypothesis, dig one level deeper. It might give you a different perspective that you had missed.

Happy Investing!

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

This article is syndicated from Equitymaster.com

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