Dividends in India is tax free in the hands of the investors, unless the dividend income is more than Rs 10 lakhs, after which it is taxable.
Now, while it is easy to select stocks with good dividend paying record, it is also important to select companies that are fundamentally sound. Here are a few companies that meet both parameters.
Dividend yield of more than 4
Karnataka Bank declared a dividend of Rs 5 per share last year. Even if the bank maintains the same dividend, the yield on the stock this year, it works to near 4 per cent on the current market price of Rs 121. Check stock quote of Karnataka Bank
The stock is also undervalued at the current price. For example, the p/e ratio of the bank is just about 7 times one year forward earnings. This is cheap for a private sector bank. Read what is p/e ratio and how to interpret it here
The price to book at 0.73 times is also attractive.
A goot bet if crude rises
Oil India is a leading oil exploration company in the country. The company last year declared a dividend of 160 per cent, which takes the dividend yield to 4.77 per cent on the current market price of Rs 332. The company is also fundamentally sound and is an undervalued stock. For example, this year the company is likely to report an EPS of Rs 30 at the very least. This makes the stock a good bet at the current p/e ratio of just about 11 times.
Great dividend yield
Coal India is a good stock if you want a dividend yield in excess of 8 per cent. The stock is priced at around Rs 314, which takes the hefty dividend yield to 8.77 per cent. This is a cash rich company, which has a good track record of consistently paying high dividends. Go for the stock if you want tax free dividends.
A dividend yield of 5.5%
With a dividend yield of 2 per cent, JB chemicals may not be the highest dividend yield paying stock around. However, it remains a good investment.
The p/e ratio for the stock is around 14 times, which is much lower than peers. It can also be an interesting pick at the current levels, owing to the fact that business prospects remain bright for the company going forward.
A great dividend yield
At one stage the dividend yield of NMDC was almost 9 per cent. The share price has now rallied to as much as Rs 146, which has led to a drop in the dividend yield of the company to 7.5 per cent. This is not bad as this is a cash rich company that is engaged in iron ore mining. The stock like Coal India is a government of India enterprise that is debt free and has huge cash balances. This also makes it a great undervalued stock to own.
A good yield
IndiaBulls Housing declares dividend almost 4 times each year. The yield on the stock works to 6.5 per cent on Rs 828, which is the current market price. This is also a good fundamentally undervalued stock. First, the company's 1-year forward p/e ratio is just 12 times. It is a company that is in the fast growing consumer housing finance sector, which is reportedly growing at 20 per cent. The sector also keeps getting benefits from the Union Budget. A good stock to buy.