Understanding Dividend Stocks in NEPSE: A Guide to Passive Income for Long-Term Investors
Dividend-paying stocks in Nepal’s stock market offer more than just price appreciation—they generate regular income. This guide explains how dividend stocks work in NEPSE, which companies lead in payouts, and how to build a passive income stream for the long term.
Introduction
For many investors in Nepal, the idea of earning passive income through the stock market sounds too good to be true. But it's entirely possible—if you understand dividend-paying stocks.
In NEPSE, dividend stocks not only offer potential capital gains but also regular cash or bonus share distributions. For long-term investors, this creates a consistent stream of income, even during market downturns.
In this blog, we’ll explore:
What dividend stocks are
How they work in the Nepali context
How to calculate returns
Top dividend-paying companies in NEPSE
How to build a passive income portfolio
1. What Are Dividend Stocks?
Dividend stocks are shares of companies that distribute a portion of their profits to shareholders on a regular basis—usually annually in Nepal.
There are two types of dividends:
Cash Dividend: Directly deposited to your bank account
Bonus Shares: Additional shares given instead of cash (or alongside it)
In NEPSE, most companies distribute dividends at the end of the fiscal year, usually after publishing their Annual General Meeting (AGM) notice.
2. Why Are Dividend Stocks Important?
Dividend stocks are ideal for:
Long-term investors seeking steady income
People planning for retirement or financial independence
Investors who want to reinvest dividends for compounding growth
They also act as a buffer in volatile markets. Even if stock prices drop temporarily, dividends provide realized income.
3. How to Calculate Dividend Yield
The most commonly used measure for dividend investing is the dividend yield.
🧮 Formula:
Dividend Yield (%) = (Annual Dividend / Current Share Price) × 100
📌 Example:
If a company gives Rs. 10 per share dividend and its share price is Rs. 200:
Dividend Yield = (10 / 200) × 100 = 5%
Higher yields are attractive, but always check the consistency and sustainability of the dividend too.
4. Cash Dividend vs. Bonus Shares
Type | Benefit | Drawback |
|---|---|---|
Cash Dividend | Immediate income | Taxable and non-reinvested |
Bonus Shares | Increased holding (compounding) | Doesn’t provide cash flow |
Most NEPSE-listed companies offer a combination of both (e.g., 10% bonus + 5% cash).
5. NEPSE's Dividend Calendar
The dividend season in Nepal generally begins after the fiscal year ends (mid-July), with:
Annual report publication
AGM announcement
Dividend proposal
Shareholder approval
Distribution
6. Top Dividend-Paying Companies in NEPSE (2020–2025)
Here are companies with a history of consistent dividend payouts:
Company Name | Sector | Avg. Dividend Yield (Past 5 Years) |
|---|---|---|
Butwal Power Company | Hydropower | 6%–8% |
Nabil Bank | Commercial Bank | 7%–9% |
Nepal Reinsurance | Insurance | 5%–7% |
Standard Chartered Nepal | Banking | 8%–10% |
Nepal Life Insurance | Insurance | 6%–9% |
Note: Dividend yield varies based on stock price. A lower price = higher yield if dividend is constant.
7. Risks and Limitations of Dividend Stocks
While dividend stocks are a powerful tool for passive income, they aren’t risk-free.
⚠️ Common Risks:
Dividend cuts due to low profits
Bonus shares may dilute price
High yield may reflect falling prices (value trap)
✅ How to Minimize Risk:
Pick companies with consistent profit growth
Check dividend payout ratio (should be sustainable)
Monitor yearly earnings reports and AGM outcomes
8. Building a Dividend Portfolio in Nepal
Step-by-Step:
Research Dividend History
Use MeroLagani or ShareSansar to check 3–5 years of dividend data.Diversify by Sector
Include companies from hydropower, banking, and insurance.Mix Cash and Bonus Dividend Stocks
Aim for a combination of income (cash) and compounding (bonus).Set an Annual Income Target
Example: If you want Rs. 100,000 per year in passive income and your average yield is 6%, you’ll need Rs. 16.7 lakh in dividend stocks.Reinvest Your Dividends
Use dividends to buy more shares and grow your portfolio faster.
9. Dividend Strategy vs. Growth Investing
Category | Dividend Strategy | Growth Strategy |
|---|---|---|
Focus | Income | Capital appreciation |
Risk Level | Low to medium | Medium to high |
Ideal For | Retirees, passive investors | Young investors, long-term traders |
Reinvestment | Optional | Crucial |
You can also combine both strategies depending on your goals.
10. Taxation on Dividends in Nepal
Cash dividends are subject to 5% tax at source
Bonus shares are not taxed initially but affect capital gains later
Keep dividend statements for annual tax filing
11. Real-World Example
Let’s say you invest in:
Butwal Power Company — 1,000 shares @ Rs. 300
Dividend declared: 10% bonus + 5% cash
You receive Rs. 15,000 (Rs. 15 per share in value)
After TDS (5%), net cash = Rs. 4,750 + 100 bonus shares
This passive income can grow year-over-year with reinvestment.
Conclusion
Dividend stocks in NEPSE are one of the most underrated paths to passive income. While trading for capital gains can be risky, dividend investing offers consistent income, compounding growth, and stability—especially during volatile markets.
Whether you're saving for retirement, planning for financial freedom, or just want a steady income stream, building a dividend-focused portfolio can help you reach your goals faster.