Investment in equity shares don't fetch a regular and fixed return like bonds, rather they are subject to the performance of the company. In Indian context, companies announce two types of dividends-1) Interim Dividend and 2) Final Dividend. Interim dividend is announced between two Annual General Meetings of a company while final high dividend stocks is given only when the annual book closure is done by a company which happens after the end of financial year. An investment in shares of company has two motive- 1) Appreciation in the share price and 2) Returns in form of dividend.

Dividend from an equity shareholders perspective is not just a cash flow received once or twice( In some cases) a year.It also speaks about the company and its performance. Ideally only such companies can afford to pay dividend who have distributable surplus after making provisions for interest, tax and depreciation from gross income. If a company has not been able to generate sufficient profit, then it would avoid giving dividend. The general perception hence is that only good performing companies can pay dividend. However there is another side of dividend payment by the companies.Those who argue against the concept of dividend payment by the companies believe that if a company has future growth plans, then it won't like to distribute profit.It would rather use the funds available with it.Cash distributed in form of dividend can be used by companies for future expansion plans.Hence only those companies show largesse in paying dividend who lack aggressive future growth plan.However there is no denying the fact that companies in modern era work with the motive of shareholders's value maximisation and hence are forced to pay dividend.Also to keep market perception about the company healthy,companies prefer to give dividend rather than re-investing the entire surplus.

One of the most important question that an investor faces is whether her should select such companies which distribute high dividend stocks or only those companies which distribute moderate rate of dividend.There is no denying the fact that post dividend, the value of a stock falls to the extent of dividend paid.An investor receives certain amount of money through dividend which can be reinvested by him and can be used for future wealth creation.In Indian context it is not unsual to find companies which pay high rate of dividend.This can be measured by the dividend payout ratio of a company.In general Public Sector Undertakings have a history of paying high dividend rate as the government itself is a shareholder.However many private companies also pay good healthy dividend.

One such company GTL Ltd. paid a dividend of Rs. 20 for financial year 2005-06 which worked out to be 200 percent as the face value of its shares is Rs. 10.The dividend payout ratio in this case was around 15 percent which is a very healthy payment from an investor's perspective.Many frontline companies like Infosys have also paid healthy dividend,however owing to high price of shares of the company dividend payout ratio does not look healthy.In the financial year 2004-05 Infosys paid more than 2000 percent dividend.Allahabad Bank is another example of high dividend stocks payment in the financial year 2005-06.However the crux of the matter is that companies use dividend as a tool to project their image.

One of the most well known and discussed theories on equity valuation is Dividend Discount Model which states that the price of equity shares of a company is the present value of future cash flows of dividend given by the company. As per the model, a company can be valued with the help of a stream of payments to be received in future in form of dividend. The theory tries to find share price based on several possible prospects of high dividend stocks payment by the company in future. Needless to say, any company which is likely to pay high dividend amount will command high price in the market as per this theory. However like many other pricing models of equity shares, this model also suffers from certain limitations which arise from the assumptions that the theory has.

While selecting a company for investment, an investor needs to look at not just the dividend payment but several other factors like compounded annual growth rate of top line growth, bottom line growth and also future growth potential of a company. If a company has consistent performance record in the past, the prospective investor can overlook the dividend payment record in the sense that the company need not essentially have paid high dividend. Some of the companies may not pay dividend in the initial years of operations but subsequently perform very well and result in good gains for the investor. In fact many such companies which don't pay dividend can as well give good returns. Valuation of a company is complex issue and involves analysing macro economic and external factors as well. Hence it would be highly unfair to say that investing in high dividend paying company is a good bet for the investor, however there is no denying the fact that a high dividend paying company atleast gives a clear indication of the balance sheet of the company.An investor needs to broaden his horizon beyond dividend before he invests in a stock.Dividend payment can at best be one of the parameters of judging the company not the sole criteria.