Who says Indian stocks don’t pay big dividends? These four blue chips yield more than 4%.

This means that dividend-paying companies must be able to generate stable cash flows across market cycles, allowing them to maintain – or even increase – those payouts over time.

Before we get into the action, let’s cover the basics.

How to calculate dividend yield

The dividend yield of a stock and the price of the stock are inversely related. For example, a stock traded at ₹100, which pays shareholders an annual dividend of ₹5 shares give a rate of return of 5%. Now if the shares fall to ₹80, the profitability increases to 6.25%, however, if the price increases to ₹120, the yield falls to 4.2%. Similarly, if the dividend payout rises or falls and the price remains the same, the dividend yield changes in tandem.

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This suggests that the beaten-down stock could be offering a tasty dividend yield. However, in addition to a stock’s dividend yield, there are several other factors to consider, such as earnings and cash flow growth, balance sheet debt, and payout ratio. The goal is to identify a portfolio of companies that can maintain these payouts even when markets become turbulent.

Here are four blue-chip companies that offer shareholders attractive dividend yields of over 4%.

Petroleum and Natural Gas Corporation

With a market capitalization of ₹3.78 trillion, ONGC is offering a dividend yield of 4.1% as dividend payouts in the last 12 months have totalled ₹12.25 per share.

ONGC is engaged in the exploration and production of crude oil and natural gas in India and international markets. It also refines and sells petroleum products, transports crude oil and natural gas, and produces liquefied natural gas, butane, jet turbine fuel, and other commodities. ONGC also generates wind power with a total installed capacity of 153 megawatts and another 36.52 megawatts of solar power capacity.

ONGC reports more than two-fold increase in free cash flow ₹$1.56 trillion in fiscal year 2020 ₹$4.73 trillion in fiscal year 2024. Based on the number of shares outstanding, the company’s annual dividend payout is lower than ₹16,000 crore, while the interest expense totaled ₹56,948 crore in fiscal 2024.

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We see that ONGC is generating enough cash flow to cover dividend and interest payments, which has allowed it to reduce balance sheet debt and make acquisitions. The improved cash flow has allowed it to raise its dividend from ₹5 shares in fiscal year 2020 ₹$12.25 per share in fiscal 2024.

Here is the dividend amount paid per share for each of the last five years.

ONGC is a reliable dividend payer and considering the potential yield of around 4.3%, it is also a good stock.

Coal India

Coal in India, which has a market capitalization of around ₹3 trillion, produces and sells coal and coal products. It offers coking coal, which is used in the steel and metallurgical industries. It also supplies non-coking coal, used as thermal grade coal for power generation and the production of cement, fertilizers, glass, ceramics, chemicals and bricks.

Coal India was founded in 1973 as the Coal Mines Authority after the sector was nationalized. Maharatna is the largest coal mining company in the world. It operates in eight states in India and has a wholly owned mining company in Mozambique, which is yet to start operations. It drives coal production in India, accounting for 80% of the country’s total production.

During the last year, Coal India paid dividend to its shareholders ₹$25.50 per share, which means a rate of return exceeding 5%.

With a payout ratio of 42%, the company’s dividends are stable. However, its growth story is far from over, given that it plans to invest close to ₹67,000 crore by the end of 2030 for construction of coal-fired power plants.

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These facilities will be located near mines, which will reduce transportation costs and increase profit margins. The company is also diversifying its cash flow as it looks to build renewable energy plants and mine other key minerals.

While India continues to invest heavily in clean energy, fossil fuels are expected to remain a key component of its energy mix.

Indian oil

Indian Oil, priced at ₹248,000 crore in market capitalization, controlled by the Government of India. IOC has business interests spanning the entire hydrocarbon value chain, from refining, pipeline transportation and marketing of petroleum products to natural gas exploration, production and petrochemicals.

Indian Oil is the country’s largest oil refining company. It has 11 refineries and accounts for a third of India’s refining capacity. Its capacity utilisation fell to 90% in fiscal 2021 due to the pandemic, but has since recovered to pre-pandemic levels. With over 15,000 kilometres of pipelines in India, it is a diversified oil and gas company.

It also operates 34,500 petrol stations, about 13,000 LPG distributors and 7,000 wholesale distributors. It is a leader in the energy infrastructure market, controlling 42% of retail outlets, 51% of LPG distributors and 48% of aviation fuel stations in India.

During the last 12 months, Indian Oil has paid cumulative dividends to shareholders of ₹12 per share, which means a profitability of almost 7%. Total free cash flow amounted to ₹$3.39 trillion in fiscal year 2024, while the dividend payout was lower than ₹16,000 crores.

Over the past three years, the IOC’s average dividend payout has been less than 50% of the organisation’s profits.

Hindustan Zinc

Hindustan Zinc, which has a market capitalization of ₹2.06 trillion, is the world’s fifth largest silver producer, with annual production exceeding 714 tonnes. It also has about 75% of the Indian zinc market.

Zinc accounted for 62% of total sales in fiscal year 2024, followed by silver (19%), lead (15%) and others (5%).

Hindustan Zinc says its focus on backward integration and cheap, high-quality zinc reserves make it the lowest-cost zinc producer. It has plants in Rajasthan and Uttarakhand.

Rising commodity prices have driven the stock up 125% over the past five years. In comparison, revenue has grown from ₹$1.83 trillion in fiscal year 2020 ₹$2.8 trillion in fiscal year 2024, an increase of 53%.

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Hindustan Zinc’s reserves and resources stood at 456.3 million tonnes at the end of FY2024. At the current rate of production, this mining capacity will last for more than 25 years. Over the last five years, reserves and resources have increased by 35%, taking into account the production of 65.1 million tonnes of ore in FY2024.

Taking into account the 2023 dividend payment, the stock offered a juicy 14% yield, but investors should note that these payments included special interim dividends, which are calculated based on earnings and can be stopped at any time.

It is worth noting that while Hindustan Zinc’s dividend payout has been high, the payout ratio in fiscal 2023 was over 300%. It is clear that this is not sustainable in the long run.

Over the last 12 months, the company paid out to shareholders ₹29 shares in cumulative dividends, which means a rate of return of 6%.

Summary

You can consider reinvesting your dividends to buy more shares of these companies and increase your dividend income over time. Alternatively, you can invest your dividends in other assets to diversify your portfolio.

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A word of caution: you shouldn’t invest in dividend stocks based solely on their dividend yield. Instead, you should focus on the quality of the businesses and their ability to maintain their dividends through good times and bad. When it comes to the dividend itself, the key is to determine how sustainable it is over the long term.

For a more detailed analysis, read on Profit Pulse.

Note: The purpose of this article is merely to provide interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider investing, we strongly recommend that you consult with an advisor. This article is for educational purposes only.

Aditya Raghunath has over 15 years of experience in finance and financial writing. His interests also include global equities. He studied commerce from Mumbai University and finance from the prestigious TA Pai Management Institute.

Disclosure: The author has no ownership interest in any of the companies mentioned above.