Ten dividend-paying stocks giving higher yields than savings accounts

Bank savings accounts are the preferred mode of savings for most Indians. They are convenient to operate and maintain, offer liquidity and are safe like a rock. Bank deposits up to Rs 5 lakh including money in savings bank accounts are now insured. This means most savers are never likely to lose their money due to a bank failure.

This is a great source of comfort for savers but your money in savings bank accounts loses its purchasing power through inflation. Retail inflation in India is currently running at around 6 percent per annum. 

In comparison, banks currently pay around 3.5 percent on their savings deposit. This translates into a 2.5 percent annual decline in the purchasing power of your money in savings deposits. 

This hurts especially if they treat savings accounts as the primary mode of savings and have accumulated a large corpus over the years.

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A better option is to invest in blue chip and high dividend-paying companies. The dividend yield on some blue-chip stocks is currently higher or equal to the annual interest by banks on savings deposits. 

Besides a quarterly or annual dividend income, high dividend-paying stocks also appreciate at a steady rate providing capital appreciation to investors. 

These stocks provide the best of both worlds - a year-on-year appreciation in your initial capital and annual income in the form of an equity dividend. Dividend income is also a great way to cushion the blow from roaring consumer price inflation that eats into the purchasing power of our salaries and regular income. 

Corporate revenues and profits are generally protected from inflation and higher prices allow companies to earn higher profits and pay higher dividends to their shareholders. 

In other words, you can expect dividend income to outpace your regular income when inflation is high. Here are ten high dividend-paying companies with yields higher than the interest on savings deposits. Please keep in mind that investments in stocks are subject to market risks, unlike bank savings deposits. 

1. India’s top fuel marketer and the government-owned Indian Oil Company (IOC) is at the top with a dividend yield of around 7 percent nearly six times more than Sensex companies’ average dividend yield of 1.1 percent currently.  The stock also scores high in financial health with a return in net worth of 26.7 percent currently, much higher than Sensex companies RoNW of around 14 percent currently. The stock is up nearly 90 percent in the last one year.

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2. One of the country’s top mining & metal conglomerates Vedanta comes next with a dividend yield of 6.6 percent at its current stock price. The company has historically been the biggest dividend payer in the country. The stock disappoints a bit on financial health parameters with RoNW of 10.7 percent but is likely to improve going forward. The stock has almost doubled in price in the last 12 months.

3. The public sector crude oil refiner and marketer Bharat Petroleum Corporation Ltd (BPCL) is next with a dividend yield of 6.1 percent currently. It also has one of the best balance sheets in its industry with RoNW of 41.6 percent currently. Its stock price is up nearly 100% in the last year.

4. The country's top coal producer Coal India is next in our list with a dividend yield of 5.3 percent currently. The company also scores high on financial health with a RoNW of 52 percent currently. The stock is up nearly 80 percent in the last one year.

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5. The country's top oil and natural gas producer Oil & Natural Gas Corporation (ONGC) is next on our list with a dividend yield of 4.3 percent at its current stock price. The company is financially in good health with RoNW of 18.5 percent. The stock is up nearly 60 percent in the last 12 months.

6. The SRF group's holding company Kama Holdings comes next with a dividend yield of 3.8 percent at its current stock price. The company also scores on financial health with a RoNW of 25 percent. The stock has been a laggard and is down around 15 percent in the last 12 months which creates a buying opportunity for value investors

7. The mutual fund company UTI Asset Management Company (UTI-AMC) is next on our list with a dividend yield of 3.7 percent at its current stock price. The company also scored high on financial health with a RoNW of 19.5 percent. The stock has been an out-performer and is up 60 percent in the last one year.

8. The public sector iron ore miner NMDC is next on our list with a dividend yield of 3.5 percent at its current stock price. It also has one of the best balance sheets in the mining industry with a RoNW of 23 percent currently. The company's stock price is up nearly 45% in the last one year.

9. The country's shipping company Great Eastern Shipping Company is next on our list with a dividend yield of 3.4 percent at its current stock price. The company also scores high on financial health with a RoNW of 23 percent currently. The stock is up nearly 60 percent in the last one year.

10. India’s top power grid operator Power Grid Corporation is the last company on our list with a dividend yield of 3.4 percent at its current stock price.  The stock also scores high in financial health with a return in net worth of 18.3 percent, among the highest in the power sector. The stock is up 70 percent in the last one year.

Happy investing!

(Disclaimer: This article is for information purpose only. Readers are advised to consult a certified financial advisor before making investment in any of the funds or securities mentioned above.)

(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist). 

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