Investing in stock markets opens up better growth prospects for your capital and hence it has become a preferred investment for many, especially individuals with a high-risk appetite. Needless to say, this can be realised only when investments are made in securities of companies having the highest potential or the most suitable risk-reward ratio. For the same reason, investors who have a low-risk profile and want regular income from their investments, opt for the best dividend-paying stocks. The highest dividend paying stocks belong to companies that are financially sound, are established in their domain or are domain leaders, possess economic moat over peers, and have performed consistently well in the past.
Securities associated with highest dividend payments can be listed as follows –
Equity shareholders of a company are eligible to earn a portion of the net profit realised in a financial year. These securities form a major segment of the highest paying dividends instruments available in the market.
Stocks issued by companies having a market capitalization value of higher than Rs. 20,000 Crore is known as blue-chip stocks. These companies have a proven track record of yielding substantial returns on investments, owing to a secure financial base and strong management. These are one of the highest dividend-paying shares an investor can purchase to increase their annual income through profit distribution.
Stocks of large-cap companies are one of the best dividend-paying stocks available in the market, as they provide not only high but stable periodic returns on total investments.
Large-cap companies have the necessary resource base to preserve their production requirements during times of economic slowdown in a country. As these companies generally provide services at reasonable prices appealing to a large demographic, demand does not falter to a great extent. This allows such funds to generate returns even in adverse market situations, ensuring annual dividend returns to investors.
Penny stocks are one of the highest dividend paying stocks available in the market. Such shares are offered by start-up companies at tremendously low prices. Massive income can be generated through investment in penny stocks, as companies providing such securities have tremendous growth potential. However, businesses raising funds through penny stocks are not listed in major stock exchanges in India such as BSE or NSE, they are only registered with minor exchanges across the country.
Multibagger stocks are one of the top dividend-paying shares as well. Businesses issuing such stocks can be both large and small-cap. Large-cap companies looking to raise finances for expansion purposes, or small-cap companies having tremendous growth potential can issue Multibagger stocks. Generally, companies issuing these top dividend-paying shares can be identified easily as they have a large range of offered products and services guaranteeing better market stability.
ETFs are traded as standard securities in a stock exchange, generally comprising of shares of companies operating in a particular sector. These act as one of the best dividend-paying shares, as asset management companies target booming sectors demonstrating tremendous growth potential. ETFs generally try to match the performance of an underlying benchmark index, thereby minimising the element of risk associated with such investments.
The highest dividend paying stocks pose a risky investment option as they are primarily composed of equity investments. Such shares are heavily dependent on market fluctuations and prevailing socio-economic conditions in a country. A downturn in the production cycles significantly impacts the aggregate demand in the market, hampering the revenue generation of businesses. In the short term, investors run the risk of incurring a loss due to such cyclical fluctuations.
However, these problems do not persist in the long run. Top dividend-paying shares are issued by companies having a financial and productive competency. Thus investors can be assured that they will benefit during the business cycle boom if they choose to pool their resources in such companies.
It is important to note that not all stocks that pay dividends can be considered good stocks. Some stocks may pay high dividends to attract investors while accruing debt to meet the payout demand. The signs of the best dividend paying stocks are:-
Here are the following things investors must keep in mind before selecting high dividend paying stocks:-
High dividend paying stocks are ideal for investors who want to earn a steady income from the stock market without exposing themselves to high risk. High dividend paying companies have a history of stability and consistent financial performance and are hence attractive options. While selecting the best dividend stocks for your portfolio, ensure you know about the underlying fundamentals of the business as well as have thorough knowledge about the sector and its inherent risks.