Top 10 companies that pay more than 25%

dividend
Sanket Dhanorkar, ET Bureau Nov 24, 2014, 08.00AM IST

Ask the average Indian what he wants from his investments and the answer would probably be,
'stable returns'. This is why bank fixed deposits and small savings schemes are so popular while
stocks account for less than 5% of total household wealth. Individuals stay away from stocks
because it's a volatile asset class. But take a closer look and you will find that some companies
have given steady income to investors. They have consistently given back a significant chunk of
their net profits to shareholders in the form of dividends.

Not surprisingly, such stocks are a huge draw among investors. We scoured the past 10 years'
data for companies that have consistently paid more than 25% of their net profits as dividends,
while also outperforming the index in at least seven of the 10 years under consideration. Out of
the BSE-500 universe, only 38 companies made the cut. However, only a handful of these have
the enviable record of beating the Sensex on at least seven of the 10 occasions.
Our cover story looks at the top 10 dividend-paying stocks that have beaten the Sensex at least
seven times in the past 10 years. While the Sensex has clocked a compound annualised return
of 17% during this period, these stocks have managed to deliver a whopping 38% gain per year
on an average. These terrific returns are besides the high dividend paid to the shareholders in
the past 10 years.
Will these companies continue paying such high dividends in the future as well? The
management policies of some of these companies require that they pay a specified portion of
their profits as dividends each year. As such, shareholders can be assured of a regular and
generous dividend flow from such stocks year after year. If you hold on to a few of these gems
for a long time, they could easily make your retirement more carefree.
A caveat is in order here. These scrips are not to be confused with high dividend yield stocks.
Dividend yield is the dividend as a percentage of the stock price. It is the return for the
shareholder from the dividend he receives. While the stocks on our list offer a huge dividend
earning potential, they may not yield an immediate high dividend return. Dividend yields are
typically high when stock prices are suppressed. In this case, however, stock prices are already
at significantly higher levels, reflecting the solid fundamentals that the companies boast.
Consequently, the dividend yield in most of these stocks will not be significantly high.
Some of these stocks are trading at high prices. With their PE multiples at 40-50 times their
earnings, these stocks are certainly not value picks. In fact, some of these stocks may not have
much room left for an upside in the short to medium term. In some cases, analysts are even
recommending investors to sell. If your investment horizon is only a couple of years, you should

not venture into these scrips. However, the high valuations should not deter those who want to
reap the rewards over a very long term. For them, these scrips can be the holy grail of regular
income and good returns.
ITC
ITC has underperformed its peers in the FMCG segment over the past few months due to
concerns over the stringent packaging guidelines for cigarettes and potential restrictions on the
mode of sale. However, many analysts say that these concerns are overdone. This confidence
stems from the company's strong resilience over the years despite several headwinds. The
earnings of the diversified conglomerate have clocked a compound annual growth of nearly
20% in the past decade. Its strong pricing power in the cigarettes segment, the primary driver of
its profits, has ensured that ITC has maintained its margins over the years. The robust cash flow
has translated into a windfall for its shareholders.

ITC shares have

yielded an impressive 26% CAGR in the past 10 years, while maintaining a track record of
generous dividend payouts, averaging more than 50% of the net profit during this period. In the
past 10 years, the company has made a net profit of Rs 44,925 crore. Of this, Rs 25,350 crore
has been given out as dividend to its shareholders.
This generosity has been hailed by the markets. ITC shares have shot up more than 10 times in
the past 10 years. An investment of Rs 10,000 in ITC in 2004 is now worth over Rs 1 lakh. With
its dominant position in cigarettes and expected rampup in other FMCG businesses, the current
valuation discount over its peers makes the stock an attractive buy, according to analysts.
Vanmala Nagwekar, analyst, IIFL Securities, says, "ITC remains one of our top picks in the
sector given the strong resilience in its core business. The current valuations ignore positives,
such as ITC's dominant position in the cigarettes business and the consistent strong
performance of its other FMCG business."
Page Industries
Page Industries enjoys a unique distinction in the market. This manufacturer and distributor of
innerwear brands has managed to outperform the Sensex for each of the past seven years
since it has been listed. The stock has delivered a compound annual growth of 61% since its

debut on the bourses in March 2007. The stock's phenomenal climb isn't the only reason Page
Industries' shareholders are cheering.

The company has also paid huge dividends over the years. The dividend payout has averaged
more than 48% of its net profit in the past seven years. The company derives its strength from
its market leadership position in the branded innerwear ( Jockey) and swimwear (Speedo)
segments. These products are positioned in the fast growing premium and mid-price segments,
giving Page a leg-up over many of its rivals who primarily operate in the economy range.
Not surprisingly, the company has registered a 40% compound annual growth in earnings in the
past five years. Its superior brand recall, product innovation and strong distribution network
makes it ideally positioned to cater to the increasing demand in this space. Analysts, therefore,
expect it to continue delivering solid growth in the coming years, besides maintaining its high
dividend payouts.
Varun Chakri, analyst, Karvy Stock Broking, says, "Page Industries is likely to continue with the
same momentum despite being in a working capital-intensive industry, which makes us believe
in its strong growth prospects."
P&G Hygiene
Though P&G Hygiene is second in the list of high dividend-paying companies, its financial
performance has been tepid, with a compound annual growth of 12% and 9% in revenue and
net profit, respectively, in the past 10 years. Still, its share price has grown at the rate of 30%
annually. What makes it stand out among the rest is its generous dividend payment track
record. In the past five years, it has paid around 40% of its profit regularly to shareholders,
making it a highly dependable bet for long-term investors.

The company enjoys a strong brand equity and its products are household names across India.
These include products like Vicks, Ariel, Tide, Whisper, Olay, Gillette, Pampers, Pantene, Oral-B
and Head & Shoulders. Superior product propositions and technological innovations have
enabled P&G to achieve market leadership in most categories.
Analysts believe the stock has long-term potential. Krishnan Sambamoorthy, analyst, Nirmal
Bang Institutional Equities, says, "While the current valuation appears fair, we believe the stock
is a multi-year growth story. Volume growth in Whisper could potentially be above 15% annually
for the next 10 years, while Vicks also has huge growth potential. Therefore, earnings growth of
around 20% can sustain for a long time."
Asian Paints
The industry leader in paints, Asian Paints has a rich dividend-paying history stretching over
many years. The company has paid an average 42% of its net profit as dividend in the past 10
years, while the stock has beaten the Sensex eight times in 10 years. Its ability to maintain a
generous dividend payout stems from the consistent high cash flow it generates due to its
superior pricing power made possible by its leadership position.

Even during the economic slowdown of 2009-14, the company's revenues clocked a compound
annual growth of 18%. That the gross margin for Asian Paints expanded by 3.4% during this
period of high inflationary pressure indicates the pricing power it enjoys. Its market share has
also improved by 4% in terms of brand value, supported by a strong dealer network, an efficient
supply chain, effective brand building and the launch of premium products. Going forward, the
benign raw material prices and a high operating leverage are expected to expand the operating
margins further. This makes analysts believe that the company is likely to continue its rich
dividend payouts.
Sanjay Manyal, analyst, ICICI Securities, says, "We believe the robust pace of growth in
revenues and earnings would continue for a prolonged period with the economic recovery and
GDP growth coming back on track. Also, the high cash on the books could lead to an increase
in dividend payout and improvement in RoEs."
Dabur India
In the FMCG space, Dabur India has stolen a march over many of its peers in the past decade.
Its shares have delivered a compound annual growth of 34% over these years, while also
generously distributing more than 35% of its profits among shareholders over the past five
years. This sustained high dividend has been possible due to Dabur's stellar financial
performance. The company's product suite ranges from health supplements, digestives, hair
care, oral care, skin care and foods.

The strength of Dabur's product offerings is evident from its volume growth over the past few
years, which has been the most resilient among FMCG companies. The company is expanding
its urban footprint by covering 75,000 chemist shops by the end of 2014-15, compared to
around 50,000 currently. The company also plans to launch products more suited to urban
consumers. Analysts believe this will benefit the company.
Latika Chopra, CFA, JP Morgan India, says, "We are overweight in Dabur as we think it is likely
to fare better in a slowing consumption growth environment, given that a significant share of
product portfolio is skewed toward the mass/mid-segment and the company has an increasing
focus on distribution enhancement."
GlaxoSmithKline Consumer Healthcare
MNC stocks are a big draw among investors and it isn't too difficult to understand why. These
companies are reputed for quality management, superior corporate governance and best global
practices. Their stocks typically command a valuation premium for these very reasons. Besides,
most MNCs are known to have a generous dividend policy.

GSK Consumer Healthcare is one such stock. GSK has paid an average dividend of 38% of net
profit in the past 10 years, while the stock has beaten the Sensex seven times in 10 years. The
company boasts powerful brands, such as Horlicks and Boost, in the malted food drinks
category, which account for roughly 90% of the company's sales. With a 65% share of the
market in this space, GSK enjoys huge pricing power. Besides, it has brands such as Crocin,
Eno and Iodex in its over-the-counter drugs portfolio.
The company also introduced premium offerings catering to urban consumers, last year, in the
form of Sensodyne, while also launching premium variants of its existing brands. The company
has been witnessing muted volume growth of late, with margins also under pressure. But its
product range and pricing power are likely to support earnings growth in the coming years.
Prashant Kutty, analyst, Emkay Global Financial Services, says, "We remain positive on the
stock owing to strong growth drivers in malted food drinks category, leadership and pricing
power. The volume growth is muted, but the gain in market share and healthy price growth give
comfort."
Supreme Industries
Supreme Industries offers a range of plastic products in India, operating in various segments
like plastic piping systems and protective packaging products. The company has been on a high
growth trajectory in the past 10 years, with its profits clocking a stellar compound annual growth
of 28%. This has translated into a 41% CAGR in share price during this period. That's not all:
Supreme Industries has averaged an impressive dividend payout of 35% during this period.

Of late, Supreme has witnessed subdued growth due to a fall in PVC prices. However, PVC
prices are expected to inch up following the imposition of anti-dumping duty on imports from
China from September 2014. With the fall in crude oil prices, exhaustion of high-cost inventory
and reduced imports from China, Supreme is expected to see an improvement in margins. It
has also earmarked Rs 250 crore for capital expenditure in the current financial year. The stock
price has corrected recently, which provides a good entry point for investors. Jignesh Kamani,
CFA, Nirmal Bang Institutional Equities, says, "We believe the current weakness in the stock
price provides a good opportunity to buy as the structural story is intact."
GRUH Finance
It is not as widely known as its larger rival, HDFC, by both consumers and investors, but this
Gujarat-based housing finance company's performance is no less extraordinary. In the past 10
years, the company's revenues have grown 26% annually, while profits have surged 27%.
Compared to the 17% compound annual growth of the Sensex, GRUH Finance' shares have
shot up 56% over the past decade, beating the index in eight of the 10 years. This performance
has been ably supported by a stable dividend policy. GRUH shares some of the traits of its
larger peer.

Like HDFC, the company has a conservative credit culture in place, which emphasises on
quality of borrowers to support the long-term health of the business rather than aggressive
expansion of the loan book. Despite this, it boasts of a fantastic RoE of more than 30% and a
solid loan growth of around 25% without taking on much risk. However, analysts are sceptical of
its rich valuations at this juncture. Santanu Chakrabarti, analyst, ICICI Securities, says, "The
incremental headwinds that we see for the business are pressure on margins and, thereby, RoE
as the National Housing Bank's dependence reduces, and vulnerability of loan growth due to a
weakening rural income cycle."
HDFC
Shareholders of HDFC have had a lot to smile about. A consistent track record in earnings and
business growth has given it premium valuations. Return ratios have remained healthy across
economic cycles with a RoE of over 20%. Its strong brand pedigree and large network have
helped it maintain its leadership position despite a challenging macro environment.

HDFC boasts one of the best asset quality parameters in the sector (gross NPA at 0.7%) and
net interest margins at 3.5%. The stock has outperformed the Sensex seven times in the past
10 years. Analysts remain positive on the long-term growth prospects of HDFC. Manish Ostwal,
analyst, KR Choksey Shares and Securities, says, "We expect HDFC to deliver compound
annual growth of 15.5% in core earnings due to strong loan growth, stable spreads and steady
credit cost between financial year 2014 and 2017."
Pidilite Industries
The owner of the Fevicol brand managed to clock healthy growth even during the economic
slowdown. Its two major segments, consumer and speciality industrial chemicals, have grown at
a compound annual rate of around 20% and 15%, respectively, in the past five years. Its strong
brand recall, connect with consumers, distribution network and product innovation are key
strengths for the company.

The company's shares have beaten the Sensex soundly on seven occasions. The company has
also paid nearly 32% of its profits as dividends. Sanjay Manyal, analyst, ICICI Securities, says,

"While the Indian economy is on a revival mode, Pidilite, being a strong brand in the adhesive
segment, is well-positioned to capitalise on the growth momentum. A recovery in margins,
coupled with strong return ratios, would justify the company's re-rating possibilities."
(PE is price-earnings ratio, PBV is price-book value ratio; CAGR is compound annual growth
rate. All data as on 17 November 2014; Source: ETIG Database)

Highest dividend paying stocks in India

(Updated as on September'2015)
Dividend
Dividend
Yield 5Yr.
Yield CY (%)
AVG. (%)

AVG. Lump
Dividend
Paid (5Yr)
Rs.Cr.

SL

Stocks

Dividend
Price (Rs.) Payout Ratio
AVG. (5Yr)

CIL

338.00

88.16%

6.12%

4.59%

9,803.00

ONGC

231.00

38.84%

4.11%

4.07%

8,042.16

TCS

2,551.00

45.75%

3.10%

1.35%

6,736.04

ITC

316.00

57.70%

1.98%

1.67%

4,178.37

NTPC

120.00

34.20%

2.08%

3.63%

3,595.03

INFOSYS

1,095.00

37.86%

4.06%

4.69%

3,457.00

RIL

862.00

12.51%

1.06%

0.95%

2,656.20

HUL

795.00

74.93%

1.89%

1.52%

2,617.66

NMDC

100.00

38.74%

8.55%

6.37%

2,525.52

10

SBI

231.00

21.22%

1.48%

12.11%

2,377.88

11

ICICI BANK

267.00

28.29%

1.87%

5.88%

2,275.39

12

WIPRO

560.00

31.06%

2.14%

1.39%

1,921.94

13

HDFC

1,180.00

39.24%

1.27%

1.04%

1,884.92

14

HDFC BANK

1,008.00

19.51%

0.79%

0.82%

1,346.87

15

BAJAJ AUTO

2,321.00

43.36%

2.15%

1.98%

1,331.09

16

HIND ZINC

350.00

18.02%

1.26%

0.82%

1,216.89

17

L&T

1,600.00

24.42%

1.02%

1.00%

1,172.63

18

POWER GRID

125.00

19.11%

1.60%

1.79%

1,091.28

19

GAIL

285.00

28.48%

2.11%

2.96%

1,070.59

20

TATA STEEL

234.00

15.35%

3.42%

4.27%

968.33

21

POWER FIN

218.00

22.40%

4.17%

3.33%

940.99

22

BPCL

848.00

31.08%

2.65%

1.78%

911.09

23

REC

246.00

23.31%

4.35%

3.53%

858.10

24

AXIS BANK

479.00

15.72%

0.96%

3.03%

820.47

25

BOB

181.00

18.21%

1.82%

8.80%

779.46

26

M&M

1,167.00

24.47%

1.03%

1.08%

775.86

27

PNB

134.00

16.49%

2.53%

12.59%

677.52

28

HCL TECH

920.00

29.07%

1.09%

0.99%

630.18

29

AIRTEL

350.00

6.79%

0.51%

0.33%

447.74

30

MARUTI

4,317.00

13.24%

0.58%

0.28%

358.56

AS OF SEP 2013