With the market trading within a narrow range, dividend payout has come to matter for investors. Investors prefer stocks with a high ‘dividend yield’ ratio as it shows how much a company pays out in dividend each year relative to its share price.

In the absence of any capital gains, dividend yield can be a handsome return on investment for investor.

Majority of Indian companies pay dividend after the annual accounting of their revenue and profit earnings at the close of the financial year, but some with high profits announce dividends even on a half-yearly basis or at the close of a quarter.

There are also special dividend announcements to reward shareholders on the completion of some important milestones or sale of assets, bringing in extraordinary income to the company’s book.

“High dividend yield stocks offer a safe haven for investors where safety has greater priority compared with high returns. Hence, even if the market remains volatile, going ahead, an investor can still get a decent return on investment, thanks to good dividend yield stocks. Dividends are paid no matter in which direction stocks move and can provide a higher yield on investment in a weak market,” said Pankaj Pandey, head of research at ICICI Securities.

According to recent report by HDFC Securities, there are 52 companies that have dividend yield of 4 per cent or more. Some of the top dividend yield companies are Kanoria Chemical (9.2 per cent), HOV Services (9.2 per cent), Ester Industries (8.3 per cent) and HCL Infosystems (8.3 per cent).

ICICI Securities said in a note that some of high dividend yield stocks that will turn ex-dividend between July 26 to August 30 are Century Textiles, GE Shipping, Manglam Cement, Piramal Health, Wheels India, Elecon Engineering, Zee Entertainment, Piramal Glass, Madras Cement, VST Till Tractor, ICRA, Tata Global, City Union Bank, India Cements, Godavari Power, Chambal Fertiliser, GNFC and GSFC.

Ex-dividend date is fixed by the company. On this date, the security trades without its dividend. If an investor buys a dividend-paying stock a day before the ex-dividend date, s/he will still get the dividend but if the stock is bought on the ex-dividend date, the investor will not get the dividend. For instance, Tata Chemicals and EIH are going ex-dividend on Monday, July 25, so those who buy the stock on Monday will not get any dividend.

An analysis of BSE 200 companies showed dividend payment has been on the rise over the past few years. There has been a consistent rise in dividend paid by 134 BSE 200 companies over the past three years, according to data provided by Capitaline and analysed by Financial Chronicle.

“Over the past 3-5 years, companies have steadily increased dividend payouts as earnings have grown consistently at double-digit rates. On a relative basis, less capex-intensive companies and sectors have given higher dividends,” Pandey said.

Companies with capex plans and those who have huge debt on their books may not pay dividend at all, though some of them still do it as a policy to reward shareholders .“Dividend payout varies in case of companies that are debt free and have cash on their books vis-à-vis those loaded with debt. Some companies such as Tata Motors and Tata Steel have announced dividends in spite of having debt due to big acquisitions,” said Preeti Samtani, vice-president for institutional equities at GEPL Capital.

“Since their (Tata Motors, Tata Steel) businesses are robust, they need to reward shareholders who have been with them. Companies with richer cash flows also reward shareholders as they have low debt,” Samtani added.

Swati Kulkarni, vice-president and fund manager with UTI Mutual Fund, who also manages the UTI Dividend Yield Fund, said, “Companies with volatile profits may default on dividend payout while those with capex plans may not be able to pay dividend.”

“Dividend policies differ across companies and sectors. If a particular sector is in growth stage and involves huge capital outlay for a reasonable time, dividend will not be distributed and it will rather get ploughed back into the business in order to fund growth,” Pandey pointed out.

For instance, dividend payout will be low or nil for infrastructure sector companies as their present capex levels are high, he said. FMCG and consumption-driven companies have doled out hefty dividends.

Nestle India, Glaxosmith­kline, ITC, Hindustan Unilever, Godrej Consu­mer and Titan are some of the companies that have given huge dividends as well as bonus shares over the past one year.

FMCG and consumer-focused co­mpanies that have entered maturity stage and have asset-light business models will have significantly high dividend payout policies as they are not required to invest in capacities in a saturating growth environment, Pandey said. Listed PSUs rank high in dividend payout with ONGC (Rs 7,058 crore), IOC (Rs 3,156 crore) and NTPC (Rs 3,133 crore) topping the chart; while Infosys (Rs 3,445 crore), ITC (Rs 3,443.47 crore) and TCS (Rs 2,740 crore) lead the pack among privately-owned firms.

In terms of dividend paid per sh­are, which counts more for retail inv­estors, the list of high dividend paying companies has familiar names such as ACC (Rs 30.5), Nestle India (Rs 48.5), Bajaj Holdings (Rs 35), Gl­axosmithkline Pharma (Rs 40), ITC (Rs 4.45 per share of Rs 1), Hin­dustan Unilever (Rs 6.5 per share of Rs 1), Hero Honda (Rs 110 per share of Rs 2), Bosch (Rs 40), MRF (Rs 50), Infosys ( Rs 60), ONGC (Rs 33), Engineers India( Rs 106), Patni (Rs 63 per share of Rs 2), Godrej Co­nsumer( Rs 4.5 per share of Rs 1) and Oil India( Rs 34). Dividend payout can be very rewarding for those who remain invested in a high dividend paying company for long. And it can be a real win-win deal for inv­estors if a high dividend paying company manages to notch up high gr­owth, like in the cases of Hero Ho­nda and Infosys.

Today Hero Honda’s dividend pa­yout is more than the issue price at which investors were allotted shares. Investors in Hero Honda every year receive more in dividend than what they had invested during the IPO in 1984-85.