What stock pays the highest dividend?

Summary

• Dividend is a part of profit shared by a company with its shareholder.
• For a company to pay dividends to its shareholders, it should have a good EPS (earning-per-share).
• A company which has been paying dividend for years, indicates a strong operational history.

The stock market provides two types of returns- one is dividend income, other is capital gain. Dividend is a part of profit shared by a company with its shareholder. A company if it does not share the dividend, means, it is re-investing the money into business for its future growth.

Stocks that are expected to make higher dividend returns are called income stock while the ones which provide greater opportunity for price appreciation are called growth stock.

Now, let us talk about the sectors that pay more dividends.

There are a few sectors which tend to pay more dividends, if see historically, telecom and utilities sector have used their monopoly position in the local market to generate dependable revenue and these two sectors provide high dividend yields. Tech companies can also pay more dividends.

Why does a company pay dividend?

Companies announce dividend to show their financial strength which shows their confidence for future growth as well. A company which has been paying dividend for years, indicates steady operational behaviour.

Dividends are the fixed amount to be paid on each share. Here are some characteristics of a company which pays dividends:

Persistent Earning Per Share (EPS): For a company to pay dividends to its shareholders, should have a good EPS (earning-per-share). It indicates that the company has a long track record of consistent growth, and it can be considered favourable if EPS is growing substantially on an annual and quarterly basis.

Dividend Pay-out History: A company if it has been paying dividend constantly for years, is considered a strong company. This builds the trust of the investors/shareholders, and the company has a strong chance to get the continuous support from these investors in the form of funding or debt.

Operationally Strong: Another important characteristic is that a company should be operationally strong. The reason of being that is, if it is in maturity stage, only then it can distribute the dividends else they need money for their own expenses and keep re-investing in the companies.

Why don’t some companies prefer to pay dividends?

Some companies do not prefer to pay dividends because they tend to re-invest into operations as company is in pivotal growth stage. On the other side, well-established companies also do not pay dividends sometimes because they also choose to re-invest for many purposes like new acquisitions, new initiatives, or pay debt.

This may help the shareholders to save tax as non-qualified dividends are taxable to investors. It is same as their marginal tax rate.

Here is the list of top 10 ASX-listed companies with high market cap and a strong dividend yield.

Data Source: company updates

More about these top five companies:

Fortescue Metals Group: Fortescue Metals (ASX: FMG) has a highest market cap of 70.72 billion than its peer companies like BlueScope (11.31 billion), and Champion Iron (3.35 billion).  The company is engaged into mining, processing, and transporting of iron ore for export from the company's deposits within the Pilbara region of Western Australia.

For the H1FY21, the company had a revenue of US$9.3 billion and it recorded a net profit after tax of US4.1 billion.

Also Read: Fortescue Metals (ASX:FMG) Vows To Go Carbon Neutral by 2030, 10 Years Ahead of Target

Dexus Property: Dexus (ASX:Dexus) Being the leader by its market cap (11.33 billion) among peers, Australian real estate investment trust Dexus recently acquired APN Property Group to further strengthen its fund management business.

In the quarter ended in March 2021, the company raised $125 million of new equity for its Dexus Healthcare Property Fund.

Rio Tinto: Rio Tinto (ASX:Rio), a producer of copper, gold, iron ore, coal, aluminium, borates, titanium dioxide and other minerals and metals, had a fantastic half-year 2021.  It had an around US$9.6 billion in earnings (EBITDA) and paid out US$3.8 billion in the form of dividends to its investors.

Also Read: Rio Tinto (ASX:RIO) appoints former Treasurer and Aboriginal affairs Minister to its board

APA Group: Australia's largest natural gas infrastructure company APA Group (ASX:APA) has a market cap of 10.91 billion. From the last five years, the company has been paying the dividend continuously in the range of 4.53 percent to 5.51 percent.

Stockland: Due to the pandemic impact, Stockland (ASX:SGP) paid a low amount of dividend in 2020 as compared with its previous year.  The company expected to pay a 11.3 cents per share, covering first half of FY21. But later, the company's management denied paying the distribution due to the current impact of Covid19 on business.

Now, Lets take a look at the global companies that pay high dividends and fall into large cap markets category.

Imperial Brands: European FMCG company Imperial Brands Plc (LSE:IMB) sells products like cigarette and tobacco.  With the market cap of 15.12 billion, the company distributed dividend yield of 12.5 percent and an EPS of 2.94.

Gazprom PAO: Russian firm Gazprom (LSE:OGZD) operates gas pipeline systems. The company operates into segments like production of gas, crude oil and gas condensate. Having the highest market cap of 88.79 billion, Gazprom DRC pays 10.04 percent dividend yield.

Pandora A/S: Another big company is Denmark-based Pandora A/S (LSE:0NQC) which is engaged into designing, marketing, and manufacturing of jewellery. The company paid a dividend yield of 10.03 percent.

GameStop Corp: GameStop (NYSE:GME), a large market cap company, has a dividend yield of 27.94 percent, highest among US companies.

Carnival Corp: The second highest firm in US is Carnival Corp (NYSE:CCL) which paid dividend yield of 25.01 percent. Carnival is a leisure travel company and provides vacations of all cruise destinations globally.