Oil and Gas Company Limited (NSE:ONGC) has announced that it will declare a dividend of ₹2.50 per share on January 1. This will increase the dividend yield to an attractive 3.8% and significantly increase shareholder returns.
Check out our latest analysis for Oil and Natural Gas
The earnings from the oil and natural gas industry easily cover the distributions
While an impressive dividend yield is good, it doesn’t matter so much if the payments can’t be maintained. However, the earnings of the oil and natural gas industry easily cover the dividend, meaning that the majority of the profits are retained to grow the business.
Earnings per share are expected to grow at 14.0% next year. If the dividend stays at this rate, the payout ratio could be 33% next year, which we believe can be quite sustainable going forward.
Dividend volatility
Although the company has been paying dividends for a long time, it has cut them at least once in the last 10 years. The dividend has grown from an annual total of ₹6.33 in 2014 to the most recent annual total payment of ₹12.25. This represents a compound annual growth rate (CAGR) of approximately 6.8% per year over that period. It’s nice to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. The oil and natural gas sector may have put its affairs in order since then, but we remain cautious.
Dividend payout for oil and natural gas could increase
With a relatively unstable dividend, it’s even more important to see if earnings per share are growing. In the oil and natural gas sector, earnings per share have grown 9.3% per year over the past five years. A low payout ratio and decent growth suggest that the company is reinvesting well and there’s plenty of room to increase the dividend over time, too.
We really like the dividend from the oil and natural gas sector
Overall, a dividend increase is always good, and we believe Oil & Natural Gas is a strong dividend stock thanks to its track record and growing earnings. The company easily earns enough to cover its dividend payments, and it’s nice to see those earnings converted into cash flow. All in all, this meets many of the criteria we look for when choosing a dividend stock.
Investors generally prefer companies with a consistent, stable dividend policy over companies with irregular dividend policies. At the same time, there are other factors that our readers should be aware of before investing capital in a stock. As an example, we have identified 1 warning sign for oil and natural gas that you should consider before investing. If you are a dividend investor, you should also check out our curated list of high dividend stocks.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
