Unlock Steady Passive Income: 5 Dividend Stocks Beyond Fixed Deposits

For many investors looking to generate passive income, fixed deposits (FDs) traditionally serve as a stable option. However, with interest rates hovering between 5% and 7%, the returns from FDs often fall short against rising inflation. This is where dividend-paying stocks emerge as a compelling alternative, promising not just regular income but also capital appreciation.

The Appeal of Dividend Stocks

While investing in equities does come with inherent risks, a well-researched selection of dividend stocks can provide a balanced approach to income and growth. These stocks are particularly valuable during market downturns, offering a degree of stability that many investors seek.

The recent fluctuations in the market have highlighted the necessity of investing in fundamentally sound companies that can deliver consistent dividends. If you’re looking to diversify your portfolio while achieving steady returns, consider these five dividend-paying stocks that stand out as viable alternatives to fixed deposits.

1. Chennai Petroleum Corporation

Chennai Petroleum Corporation, a key player in the oil refining sector, is a subsidiary of Indian Oil, which holds a commanding 51.9% stake. With a refining capacity of 10.5 million metric tonnes per annum (MMTPA), the company produces a variety of petroleum products and high-quality feedstock.

Dividend Performance: Over the past three years, Chennai Petroleum has averaged a dividend of Rs 28 per share, boasting a payout ratio of 14.5%. For FY24, it announced a final dividend of Rs 55, resulting in an impressive 9.6% yield.
Future Plans: The company is currently working on a 9 MMTPA refinery project in collaboration with Indian Oil, projected to cost Rs 364.5 billion. With expected annual cash generation of Rs 10-15 billion, consistent dividend payouts appear promising.

2. Hindustan Zinc

Next up is Hindustan Zinc, recognized as India’s leading zinc producer and the second-largest globally, controlling about 75% of the country’s primary zinc market.

Dividend History: Hindustan Zinc has a remarkable track record, averaging a dividend of Rs 25.5 per share over the last five years with a payout ratio of 113.2%. In FY25 alone, it declared a dividend of Rs 29 per share, yielding 6.5%.
Growth Strategy: The company plans to invest US$ 2.5 billion to double its annual production capacity, tapping into strong demand for zinc and silver in various industrial applications.

3. Bharat Petroleum Corporation

Bharat Petroleum Corporation (BPCL) is one of India’s key public sector oil companies, refining crude oil and marketing petroleum products with a market share of around 25.4%.

Consistent Dividends: BPCL ranks among the top dividend payers in the Nifty 50, maintaining an average dividend of Rs 29 per share over the past five years, and a yield of 6.9%.
Future Investments: The company has ambitious capital expenditure plans, including a Rs 160 billion investment in its Bina project expansion and a commitment to renewable energy projects, aiming for 10 GW of renewable capacity by 2030-35.

4. Indian Oil Corporation

Indian Oil Corporation (IOC) stands as India’s largest oil marketing company and the third-largest in oil and gas. With a refining capacity of 80.7 MTPA, IOC has established a robust presence in over 70 countries.

Dividend Reliability: Since 2001, IOC has consistently paid dividends, averaging Rs 8 per share over the last five years with a payout ratio of 87%. In FY24, they paid Rs 11.7 per share, translating to a 5.5% yield.
Expansion Plans: The company is set to invest over Rs 2 trillion over the next decade to boost refining capacity and integrate petrochemicals, alongside significant investments in renewable energy.

5. Coal India

Coal India is the largest coal producer globally, satisfying around 80% of India’s coal demand through its extensive operations across 84 mining areas.

Strong Dividend Track Record: Coal India has a history of paying dividends since its listing in 2010, with an average of Rs 19 per share over the last five years. For FY25, it has already declared a dividend of Rs 21.3, yielding 5.5%.
Financial Stability: The company boasts strong financial health, with a cash balance of Rs 53.5 billion and a growing demand for coal, particularly as India’s energy needs expand.

Conclusion

Investing in dividend-paying stocks not only provides an avenue for passive income but also offers the potential for capital growth. While equities come with risks, carefully selected dividend stocks backed by solid fundamentals can serve as a strong alternative to traditional fixed deposits.

With robust cash flow, attractive dividend yields, and a focus on sustainable growth, these stocks can help investors build a reliable income stream. However, it remains essential to evaluate each company’s financial performance and long-term prospects to make informed investment decisions. Happy investing!