How to Earn Passive Income from the Stock Market Through Dividends & Growth Stocks

Overview: 

• A mix of dividend-paying companies and growth stocks helps generate passive income while also building long-term wealth in the stock market.

• Strong fundamentals like ROE, ROCE, earnings growth, and reasonable valuations are important before investing.

• Reinvesting dividends and staying diversified across sectors reduces risk and improves overall returns over time.

Passive income through the stock market can be generated by mixing a portfolio of strong dividend-paying stocks with a selection of growth stocks. Dividend stocks are known to provide regular income, and growth stocks can be used to boost the overall value of the portfolio. The current market scenario indicates that both concepts can be combined, even during times of high market volatility.

Dividend Stocks Offering Steady Income

Dividend stocks are preferred by income investors because of their regular income generation. There are a few large Indian companies that are currently offering high dividend yields along with strong fundamentals.

Vedanta Ltd stands out with a dividend yield of 6.40%. The company has a market capitalization of Rs. 2,65,677.44 crore and trades at a PE ratio of 17.73. It has booked a 1-year return of 63.75%, supported by a strong return-on-equity (ROE) of 31.28% and ROCE of 29.11%. The 6-month return of 55.13% shows strong performance. 

Coal India Ltd offers a dividend yield of 6.27% with a lower PE ratio of 7.36, suggesting relative valuation comfort. The company reported a 1-year return of 17.33% and maintains a high ROE of 38.53%.

REC Limited provides a yield of 5.09% and trades at a PE of 5.86. Although recent returns have been negative, its valuation is attractive compared to peers.

Hindustan Zinc Ltd offers a 4.89% yield with a high ROE of 72.60% and ROCE of 62.89%. Its 1-year return of 42.97% shows strong performance in the metals sector.

In tech-related companies, Tata Consultancy Services Ltd offers a dividend yield of 4.66% with a market cap of Rs. 9,79,271.57 crore. However, its 1-year return stands at -30.68%, highlighting the weak performance of IT stocks in 2026.

GAIL (India) Ltd and Oil and Natural Gas Corporation Ltd both offer yields above 4.5%. ONGC posted a positive 1-year return of 16.22%, supported by rising energy demand.

ITC Ltd continues to provide a 4.51% yield with a strong ROE of 47.83%, though its stock has declined 22.19% over the past year.

UTI Asset Management Company Ltd and HCL Technologies Ltd are also important dividend options, offering yields above 4% with stable financial metrics.

These dividend stocks show that high yield alone is not enough. Profitability ratios such as ROE and ROCE, along with manageable PE levels, help in identifying sustainable income sources.

Also Read - How to Build a Diversified Stock Portfolio from Scratch

Growth Stocks With Strong Earnings Momentum

Growth stocks focus more on profit expansion than dividend payout. Many mid and small-cap companies are reporting great quarterly improvements in profit and sales.

Narmada Gelatine trades at Rs. 378.50 with a PE of 9.45 and quarterly profit growth of 72.90%. Sales increased 18.14%, and ROCE stands at 19.92%.

SKP Securities reported quarterly profit growth of 59.28% with a strong ROCE of 27.55%.

Enbee Trade showed a great quarterly profit growth of 307.32% and sales growth of 67.30%, though it trades at a very low price of Rs. 0.41.

Omax Autos reported a 325.78% quarterly profit with a 32.39% sales increase.

Swaraj Engines has sound fundamentals with a high ROCE of 56.21% and consistent earnings growth.

Companies such as Ovobel Foods registered a high profit growth of 341.74% and sales growth of 44.88%, indicating healthy business operations.

Growth stocks usually carry higher risk, especially smaller firms. Some companies have low market capitalization, making price swings more volatile. However, strong earnings growth can drive significant capital appreciation if performance continues.

Also Read - Top Infrastructure Stocks for 2026: Best Investments to Consider

Building a Balanced Passive Income Portfolio

A balanced approach may combine high-yield large caps such as Vedanta or Coal India with selective growth names showing strong quarterly numbers. Dividend stocks generate regular income, while growth shares increase overall wealth over time.

Currency market conditions show sector rotation, with energy and metals performing better than IT in recent months. This shift highlights the importance of diversification. Over-concentration in one sector can reduce stability.

Passive income from stocks is not created overnight. It requires patience, monitoring financial health, and sometimes tolerating short-term price declines. Some stocks may fall in price even when dividends are stable. This is quite normal in equity markets.

Combining dividend yield, reasonable valuations, and earnings growth can help create a sustainable income stream. When managed properly, this strategy can support long-term financial goals, even if markets sometimes move in unpredictable ways.

FAQs

1. What is Passive Income from the Stock Market?

Passive Income from the Stock Market refers to earnings generated through Dividends and capital appreciation without active daily involvement.

2. Are high Dividend yields always safe?

No, very high yields can sometimes signal financial stress. It is important to check company profits, debt levels, and payout ratios.

3. What are Growth Stocks?

Growth Stocks are companies that reinvest profits to expand operations, leading to higher earnings and potential price appreciation instead of large Dividends.

4. Can both Dividends and Growth Stocks be combined in one portfolio?

Yes, combining both strategies helps balance regular income with long-term capital gains.

5. How long does it take to see results?

Stock Market investing requires patience. Meaningful Passive Income and wealth creation usually take several years, not months.