38 companies in the BSE 500 have paid more than 25 per cent of their net profit as dividend

MUMBAI: Retail investors avoid stocks because it's a volatile asset class. This is why bank FDs and small savings schemes are so popular while stocks account for less than 5 per cent of total household savings. But a few stocks have not only clocked high returns but also given back a significant portion of their profits to shareholders in the form of dividends.

We scoured the past 10 years' data for companies that have consistently paid more than 25 per cent of their net profit as dividends. Out of the BSE 500 universe, only 38 companies made the cut. Only a handful have outperformed the Sensex in at least seven of the 10 years under consideration.
While the Sensex has clocked a CAGR of 17 per cent during this period, these stocks have managed to deliver a whopping 38 per cent gain per year on an average. And these terrific returns are besides the high dividend paid out to shareholders. Will these companies continue paying such high dividends in future as well?

The management policies of some of these companies require them to pay out a specified portion of their profits as dividends each year. As such, shareholders can be assured of a regular dividend flow from such stocks year after year. If you hold some of these gems for a long time, they could even fund your retirement.

While the dividend payout of these stocks is high, they are trading at high levels so the dividend yield will be suppressed. Also, with their P/Es at 40-50 times their earnings, these 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. If your investing time horizon is only a couple of years, don't venture into these scrips. However, the high valuations should not deter those who want to reap the rewards over a very long term.