Five Dividend Stocks to Watch for Steady Returns Over the Next Three Years
In the current stock market environment, finding comfort can be challenging. Prices have surged ahead of dividends, leading to declining yields across many sectors. Numerous stocks appear fully priced, forcing investors to rely heavily on future price appreciation for returns. During such phases, dividend-paying companies often take a backseat as growth narratives dominate the spotlight. However, dividends play a crucial role by putting cash directly into investors' hands, reducing the dependency on timing market cycles effectively.
The quality of a dividend is paramount. It should stem from robust operating cash flows rather than borrowing or one-off gains. Businesses that consistently generate cash and maintain controlled leverage are better positioned to sustain payouts through economic fluctuations. These stocks may not promise excitement, but they offer a valuable degree of predictability. Over a three-year horizon, regular dividends combined with reasonable valuations can contribute significantly to portfolio performance, often more than is commonly acknowledged.
The following five stocks exemplify this category, making them worthy of attention for investors seeking income and stability in the medium term.
1. Oil and Natural Gas Corporation (ONGC)
Oil and Natural Gas Corporation is a cornerstone of India's upstream energy sector, involved in crude oil and natural gas production. This business operates on long cycles, where decisions made today impact financial results years later. This characteristic has enabled ONGC to generate steady cash flows consistently.
Even during periods of slowed growth, ONGC has continued to return cash to shareholders, primarily supported by operating cash flows rather than straining its balance sheet. In Q2FY26, standalone sales saw a slight decline of approximately 0.9% year-on-year due to softened realized prices for crude and value-added products. However, Ebitda margins remained resilient, aided by lower recouped costs and stringent cost control measures.
Looking forward, management anticipates growth from gas production. The KG-98/2 field is expected to ramp up production from FY27, with additional volumes from the Daman offshore project also coming online. This shift should increase the proportion of higher-priced new well gas in the production mix. ONGC plans to maintain upstream capital expenditure around ₹30,000–35,000 crore annually, mostly funded through internal accruals, focusing on new field development and gas infrastructure.
Currently, the stock trades at about 9.55 times earnings, below its long-term median valuation, with a dividend yield near 5.04%.
2. ITC Limited
ITC operates across diverse segments including cigarettes, FMCG, agriculture, and paper-based businesses. Cigarettes remain the largest revenue contributor, followed by FMCG and agricultural products. This diversified profile has bolstered ITC's reputation as a consistent dividend payer.
Despite cyclical pressures in individual businesses, the company has sustained cash generation, supporting dividend payouts without over-reliance on the balance sheet. In Q2FY26, sales declined about 4% year-on-year, largely due to a sharp 31% drop in agriculture revenue from seasonality and a high base. Conversely, the cigarettes business grew around 6.8% year-on-year, driven by volume increases and some mix improvements.
Margins in the cigarettes segment contracted due to elevated leaf tobacco costs, while FMCG margins improved sequentially as commodity prices stabilized and cost initiatives took effect. Management expects the agriculture business to normalize as seasonal effects diminish, with agriculture revenues up about 7% year-on-year in the first half of the year.
The company's focus remains on premium segments within the FMCG portfolio and cost discipline. Capital expenditure for the year is manageable and primarily funded through internal accruals, with no leverage pressure. The stock trades at around 20.8 times earnings, at or below its typical valuation range, with a dividend yield near 4.3%.
3. Hindustan Zinc
Hindustan Zinc is involved in mining and smelting zinc, lead, and silver. This business emphasizes costs, volumes, and metal prices over short-term fluctuations, translating into steady cash generation over time.
Even as metal prices cycle, Hindustan Zinc has continued to return cash to shareholders, supported by operating cash flows. In Q3FY26, sales grew 27% due to higher zinc and silver prices and improved volumes. Ebitda margins expanded as the zinc cost of production fell to about $940 per tonne, the lowest in five years, aided by lower power costs and higher domestic coal usage.
Management guides the zinc cost of production to remain in the $950–1,000 per tonne range, helping stabilize margins even if metal prices soften. Production across zinc, lead, and silver remains on track. Future investments will focus on debottlenecking, capacity expansion, and improving recoveries, largely funded through internal accruals.
The stock trades at around 14 times earnings, compared to a long-term median closer to 11 times.
4. NMDC Limited
NMDC is a major iron ore miner, producing and selling lump and fines. Its financial performance hinges on mining volumes and realized prices, offering predictability rather than frequent changes.
When volumes hold and costs are controlled, NMDC generates substantial cash, much of which has been returned to shareholders over time. In Q2FY26, sales grew 30% year-on-year, driven by higher production and better realizations. Ebitda margins held steady at around 31%, despite high royalties and levies, with operating leverage from higher volumes absorbing some cost pressures.
Iron ore production rose 23% year-on-year, while sales increased 10%. Looking ahead, NMDC focuses on optimizing existing mines through debottlenecking, expansion, and enhancing evacuation infrastructure. Management plans capex for projects aimed at improving the product mix and increasing production capacity to 100 million tonnes by FY29-30, mostly funded through internal accruals.
The stock trades below its long-term median valuation.
5. Power Grid Corporation of India
Power Grid operates India's interstate transmission network, characterized by long-gestation assets, regulated returns, and steady execution. Growth materializes gradually as projects progress from awards to commissioning.
Cash flows are stable, payouts consistent, and the balance sheet structured to handle large capital programs without excessive stress. In Q2FY26, capital expenditure surged 56% year-on-year as project awards accelerated, though capitalization grew only 14% year-to-date due to delays in right-of-way clearances and a shift to tariff-based competitive bidding.
Improvements are emerging, with capitalization picking up from October as renewable-linked substations commenced. Management expects momentum to build through the March quarter, with around ₹8,000 crore of project starts planned. Large green corridor awards and upcoming HVDC projects enhance growth visibility beyond FY27.
Power Grid has entered grid-linked storage as a preferred bidder for a 150 MW battery energy storage project, integrating storage within substations. Lower borrowing costs provide an advantage, with plans to scale this portfolio gradually. Capital expenditure is projected at ₹28,000 crore in FY26, rising to ₹35,000 crore in FY27, funded through internal accruals and debt.
The stock trades close to its long-term median valuation, with dividends anchoring returns.
Conclusion: The Value of Dividend Discipline in Volatile Markets
Markets often feel most comfortable during price rallies, when risks are easier to overlook. In such times, fundamentally strong companies serve as anchors, potentially shielding portfolios from lasting damage despite short-term swings. Dividend-paying stocks fit this framework when payouts are backed by operating cash flows and prudent capital allocation.
Dividends instill discipline and reward patience, especially in environments where price appreciation cannot be guaranteed. However, caution is necessary: dividends are not assured and can be cut or deferred if business conditions deteriorate. A high yield might sometimes indicate slower growth or underlying pressures rather than safety, making selectivity crucial.
Investors should look beyond price movements, focusing on how businesses generate cash, manage leverage, and invest for the future. Reading annual reports, tracking cash flow trends, and insisting on a margin of safety are more important than reacting to market noise. Over time, these habits can transform steady businesses into long-term wealth creators.
Disclaimer: This article is for informational purposes only and should not be considered as stock recommendations or investment advice.
