These stocks with high dividend yields beat returns from fixed deposits

Investors looking for comfort of fixed-income returns typically park their savings in fixed deposits of banks. Historically, these term deposits have been the haven for retail investors who are not savvy enough to invest in stocks. While mutual fund managers have been able to draw some of these investors over the last few years with public education and aggressive marketing efforts, fixed deposits are still seen as a default saving instrument.

However, the returns promised by banks, the go-to place for small investors to put their money, have been shrinking over time. The low interest rate regime with loose monetary policy has not just punctured saving bank account interest rates but also pushed down the fixed deposit rates.

Indeed, top-tier banks now offer fixed deposits with interest rates in the 5-5.5% range, the same interest rate that one could have pocketed by parking money in simple saving accounts a few years ago.

Companies who are generating profits also share part of the surplus cash pumped out from the business to reward their shareholders as dividends. These bring additional gains for investors even if the share price has remained static.

Some conservative investors and even mature ones pick stocks that have a generous dividend policy. This tends to keep liquidity and adds to total returns they can churn from a single investment.

One of the ways to pick stocks that reward shareholders over and above the price movement is to look at dividend yields. In simple terms, it is the payout being shared with stockholders as a percentage of the stock price.

The outliers

We scanned through the list of high dividend-yielding stocks and juxtaposed them with the top-of-the-line fixed deposit rates by banks. There are around three dozen stocks that are trading at a price which gives over 5.5% dividend yield given the payments within last one year.

Topping the charts is Aurum Proptech (formerly Majesco) that gave a special dividend that was over five times its share price. Such special cases arise from a key asset sale as was the case with Majesco.

Next on the list is Vardhman Acrylics, which also shows an abnormal yield of over 50%.

PSU dominance

If we factor these two outliers, we still have a list of around ten stocks with double-digit dividend yields. These include state-run companies BPCL, Indian Oil Corp and Power Finance Corp.

Others in this list are Goodyear India, INEOS Styrolution, Cheviot, Clariant Chemicals, Allsec Technologies, IRB InvIT Fund and PNB Gilts.

There are another two dozen stocks with dividend yields of 5.5-10%. PSUs and InvITs/REITs dominate this list.

This pack includes several public-sector companies such as Rashtriya Chemicals, Balmer Lawrie Investments, REC, Rail Vikas Nigam, Indian Railway Finance Corp, SJVN, Ircon, HPCL, RITES Ltd, SAIL, ONGC, Cochin Shipyard, NMDC and NALCO. The InvITs and REITs in this list are India Grid Trust, Embassy Office Parks and Mindspace Business Parks.

Other stocks in the list are Polyplex Corp, Gujarat Industries, PTC India, Stanrose Mafatlal, Indus Towers, Majestic Auto, Choksi Imaging, IIFL Wealth, Narmada Gelatines, and Bajaj Consumer Care.

To be fair, some of these companies find their place in the list because of one-time special dividends but there are also about 10 stocks with consistent dividend yields above 5.5%.

These include BPCL, Indian Oil, Clariant, PFC, IRB InvIT, PNB Gilts, Balmer Lawrie Investments, REC, SJVN, Stanrose Mafatlal and India Grid Trust.

Notably, investors should not look at high dividend yield stocks as a safe pick as they may still lose money if the share price goes down and they are forced to sell it to generate liquidity.