Dividend investing in 2026: 5 stocks to know
Dividend stocks provide stability to investors’ portfolios during the volatile periods in the stock market.
The stability of these stocks has proven the importance of dividends to investors time and again.
Dividends also provide an incentive for companies to increase their earnings, so they can pay an even higher dividend next year. This attracts more investors, which takes the company’s share price higher.
This is why, all else being equal, dividend-paying stocks tend to deliver higher returns than non-dividend-paying stocks over the long term.
Even the father of value investing Benjamin Graham agreed when he said: ‘The true investor will do better if he forgets about the stock market and pays attention to his dividend returns and to the operation results of his companies.’
With that, here are five stocks that you should have on your dividend watchlist for 2026…
#1 ITC
ITC is a diversified conglomerate with businesses spanning fast moving consumer goods, hotels, paperboards and packaging, agri-business, and IT. The company is the country's leading FMCG firm and the market leader in the Indian paperboard and packaging industry.
In the agri sector, it's acknowledged globally as a pioneer in farmer empowerment through its wide-reaching agri business. In the hotels segment, it's a pre-eminent hotel chain in India.
For years, ITC was planning to gradually shift towards an asset-light model in the hospitality sector for further expansion. This was put to action with the hotel business demerger.
Over the last decade, ITC has successfully created an array of strong brands which are either #1 or #2. They are market leaders in their respective categories.
The stock has always been considered as an attractive dividend play. Right from humble beginnings in 1994, the company has rewarded investors with a higher payout compared to its peers.
Over the years, the company's management has laid out a flexible capital allocation policy. It has said that dividend payouts will be stepped up to about 80-85% of its post-tax profits.
In FY24, ITC paid out ₹14.5 per share as dividends. ITC has been paying dividends since 1994 without missing a single year in between. The dividend payout ratio in FY26 was 86.4%. The company's 5-year average dividend payout ratio is 90.28%.
#2 Hindustan Aeronautics (HAL)
Hindustan Aeronautics manufactures and maintains aircraft and helicopters for the Indian Airforce, Indian Army, ISRO, Indian Navy, and Indian Coast Guard, among others.
Defence stocks in India have garnered significant investor interest. The sector has surpassed a significant milestone of ₹1 trillion in the total value of defence production.
HAL plays a strategic role in India's defence program being the only Indian company having specialisation in aircraft manufacturing, maintenance, and related services.
Along with Saffran (SAFHAL) the company is developing a new helicopter engine called Aravalli.
The company also has a massive procurement order worth ₹26000 crore for 240 aero engines for Su-30 MKI aircraft. HAL's has a very strong order backlog of ₹2.54 trillion (tn). This provides the company with a revenue visibility of around seven years.
Apart from this, the company has a deal on its cards with a US firm GE Aerospace for the joint production of F414 engines in India. The final contract is expected to be signed in 2027.
It has also set up a ₹210 crore Integrated Cryogenic Engine Manufacturing Facility (ICMF) that would cater to the entire rocket engine production under one roof for ISRO.
The company has paid regular dividends. In FY26, it declared a dividend of ₹45 per share, with a dividend payout ratio of 33%. The five-year average dividend payout ratio stands at 25.59%.
Dr Reddy's Laboratories is an Indian multinational pharmaceutical company based in Hyderabad. It manufactures and markets a wide range of pharmaceuticals in India and overseas.
The company's expertise spans several therapeutic areas, including oncology, gastroenterology, and cardiovascular treatments.
Dr Reddy's is actively expanding its capabilities with the recent establishment of a new oncology API facility in Vizag. This new facility aims to support the company's growing presence in the oncology sector.
Additionally, the company is making significant progress in developing biosimilars and complex generics, particularly in its biologics API division.
With nearly no debt, Dr Reddy's has shown impressive financial performance, delivering a 24.4% compound annual growth rate (CAGR) in profit over the past five years.
FY24 was an excellent year for the company. Its consolidated revenue, operating profit, and net profit increased 12%, 15%, and 24%, respectively, over FY23.
Apart from growing the core business of generics, the company invested in businesses of the future under the three spaces of consumer health, digital therapeutics, and access to novel molecules.
Dr Reddy's diversified global presence, capability, and strong balance sheet make it a partner of choice for various business partners. The company's strong balance sheet provides financial flexibility to implement all its plans.
In FY26, the company declared a dividend of ₹8 per share, with a dividend payout ratio of 16.1%.
The five-year average dividend payout ratio stands at 7.5%.
#4 Bharat Electronics (BEL)
Bharat Electronics manufactures and supplies electronic equipment and systems to the defence sector. The company also has a limited presence in the civilian market. The company was formed under the Ministry of Defence to handle Indian defence electronic needs.
India's defence sector is set to witness significant growth, driven by the government's approvals of major military projects. BEL is well positioned in the procurement boom of defence electronic equipment like air defence fire control radars.
The company's strong presence in the electronics and radar systems sector makes it a crucial player in India's defence ecosystem. BEL's solid order pipeline and strategic importance ensure its continued relevance and potential for growth.
The company is now investing in R&D and indigenisation efforts in many areas. The management indicated that efforts also include diversification into civilian domain like rail, metro, aviation sector, as well as space.
They have also highlighted other big-ticket programs expected in FY27 and FY28. This includes Next Generation Corvette subsystems manufacturing.
In FY26, the company declared a dividend of ₹2.5 per share, with a dividend payout ratio of 30.3%.
The five-year average dividend payout ratio stands at 39.12%.
#5 Power Grid Corp.
Established in 1992, Power Grid is among the biggest public-sector undertakings (PSUs) in India. The company has expanded rapidly to meet the country's insatiable demand for electricity.
By carrying electricity through its nationwide grid network, it acts as a connecting factor between power-generating companies and power-trading companies. When it comes to getting renewable energy to the home of every Indian, it has a pivotal role to play in the coming decades.
The company has also ventured into EV charging infrastructure and is setting up charging stations across the country.
Going forward, the company plans significant investments in expanding the transmission network with a focus on interstate and intrastate projects. This aims to connect renewable energy sources, improve grid stability, and facilitate electricity trading.
Largely due to its monopoly status, the company has consistently rewarded its shareholders with generous dividends over the years.
In FY26, the company declared a dividend of ₹9 per share, with a dividend payout ratio of 52.6%.
The company's 5-year average dividend payout ratio is 60.31%.
Conclusion
Dividend stocks offer a good buffer for one’s portfolio during times of market volatility and also have the potential for long-term appreciation.
However, dividends alone should never be the primary reason for buying a stock. Investors should carefully evaluate earnings growth, order books, debt levels, valuations, and business prospects.
If you want to dig deeper into dividend investing, use Equitymaster's powerful stock screener to check high dividend yield stocks and dividend growth stocks in India.
Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.
Happy investing.
This article is syndicated from Equitymaster.com