Oil and Natural Gas (NSE:ONGC) Is Due To Pay A Dividend Of ₹2.50

Oil and Natural Gas Corporation Limited (NSE:ONGC) has announced that it will pay a dividend of ₹2.50 per share on the 1st of January. This will take the dividend yield to an attractive 3.8%, providing a nice boost to shareholder returns.

See our latest analysis for Oil and Natural Gas

Oil and Natural Gas' Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Oil and Natural Gas' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 14.0% over the next year. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ₹6.33 in 2014 to the most recent total annual payment of ₹12.25. This works out to be a compound annual growth rate (CAGR) of approximately 6.8% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Oil and Natural Gas might have put its house in order since then, but we remain cautious.

Oil and Natural Gas Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Oil and Natural Gas has seen EPS rising for the last five years, at 9.3% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Oil and Natural Gas' Dividend

Overall, a dividend increase is always good, and we think that Oil and Natural Gas is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Oil and Natural Gas that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.