In a volatile market, investors often face a choice: growth stocks for capital appreciation or dividend stocks for steady income. However, the true ‘sweet spot’ lies in identifying fundamentally strong companies that also offer attractive dividend yields, combining the best of both worlds.
Fundamentally strong stocks are shares with a good quality of business, more importantly consistent with their earnings growth, strong cash flows & good dividend yield, determining a healthy income potential to investors. A share with a good dividend payout history entails that the company has a steady profit, revenue growth & a sign of maturity with financial security.
Benefits of investing in these stocks: steady income stream, compounding effect if reinvested, inflation hedge & stability to the portfolio. Best for investors who are risk-averse, seeking passive income & long-term focused.
Stocks to watch with high dividend yields
Coal India Ltd
Coal India Ltd is a PSU mainly engaged in mining and production of Coal and also operates Coal washeries. The major consumers of the company are the power and steel sectors. Consumers from other sectors include cement, fertilizers, brick kilns. It leads the country’s coal production, contributing to around 80% of the Nation’s entire coal output.
Coal India Ltd. exhibits strong financial performance with a 7.02% dividend yield and a 46.2% payout ratio, reflecting stable cash flows in a capital-intensive industry. The company appears undervalued, trading at a price-to-earnings (P/E) ratio of 7.46x versus the industry average of 13x.
Furthermore, robust profitability metrics – a Return on Equity (ROE) of 38.9% and a Return on Capital Employed (ROCE) of 48% – underscore Coal India’s efficient resource allocation and its strong capacity to create significant shareholder value.
HCL Technologies
HCL Tech is a leading global IT services company, which is ranked amongst the top five Indian IT services companies in terms of revenues. The company is focused on outsourcing, and offers a variety of software-led IT solutions, remote infrastructure management, engineering and R&D services and BPO.
The company has a dividend yield of 3.53% reflecting its strong financial health & dividend payout of 93.7%. Furthermore, a Return on Equity (ROE)of 25% & Return on Capital Employed (ROCE) of 31.6% indicates great efficiency in utilizing all capital (debt and equity), signifying strong overall capital management and a high-quality business.
Tech mahindra
Tech Mahindra Ltd provides a comprehensive range of IT services, including IT enabled service, application development and maintenance, consulting and enterprise business solutions, etc. to a diversified base of corporate customers in a wide range of industries.
The company has a dividend yield of 3.19%, leading to a dividend payout of 93.6% showcasing strong cash returns & sustainable future earnings. In addition, higher ROCE of 19% compared to the 15% ROE demonstrates Tech Mahindra’s efficient utilization of its entire capital base (equity and debt). This positive gap suggests the company is generating strong returns without relying on excessive debt leverage to artificially boost shareholder returns, a sign of balance sheet health.
Power Grid Corporation
Power Grid Corporation of India Limited is a Maharatna CPSU and India’s largest electric power transmission company. It operates throughout India and covers 90% of the country’s interstate & inter-regional electric power transmission system, and its business segments include Transmission Services, Consultancy Services, and Telecom Services.
The company has a dividend yield of 3.23% reflecting strong cash flows & healthy dividend payout of 53.9% suggesting future growth, as the company is retaining 46% of its profit. Furthermore, a Return on Equity (ROE) of 17% and a Return on Capital Employed (ROCE) of 12.8% positively emphasize that these are regulated, assured returns typical of low-risk transmission utilities. The lower ROCE reflects the massive, necessary capital expenditure on long-term national infrastructure.
Hero Motocorp
Hero Moto Corp earlier also known as “Hero Honda” is one of India’s first motorcycle manufacturers, engaged in the manufacture of two wheeler. Its products include Karizma ZMR, Xtreme Sports, Achiever 150, New Glamour, Super Splendor, and Passion X Pro. It operates through the Domestic and Overseas segments.
The company has a dividend yield of 3.11%, reflecting its strong financial health & dividend payout of 75.4% indicating a generous distribution to shareholders. Additionally, the company delivers a robust Return on Equity (ROE) of 23.1% and a solid Return on Capital Employed (ROCE) of 30.7%, demonstrating efficient capital utilization and strong profitability.
Written by Gourav Pratap Singh
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