Oil and Natural Gas Corporation Limited (NSE:ONGC) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Oil and Natural Gas’ shares before the 24th of February in order to receive the dividend, which the company will pay on the 16th of March.
The company’s next dividend payment will be ₹4.00 per share, on the back of last year when the company paid a total of ₹10.00 to shareholders. Calculating the last year’s worth of payments shows that Oil and Natural Gas has a trailing yield of 6.4% on the current share price of ₹156.6. If you buy this business for its dividend, you should have an idea of whether Oil and Natural Gas’s dividend is reliable and sustainable. So we need to investigate whether Oil and Natural Gas can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Oil and Natural Gas paid out just 9.7% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Oil and Natural Gas’s earnings per share have been growing at 14% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Oil and Natural Gas has delivered 6.8% dividend growth per year on average over the past 10 years. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Oil and Natural Gas an attractive dividend stock, or better left on the shelf? Companies like Oil and Natural Gas that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating Oil and Natural Gas more closely.
While it’s tempting to invest in Oil and Natural Gas for the dividends alone, you should always be mindful of the risks involved. For example – Oil and Natural Gas has 2 warning signs we think you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.