Oil and Natural Gas Corporation Limited (NSE:ONGC) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy Oil and Natural Gas Corporation Limited (NSE:ONGC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Oil and Natural Gas' shares before the 4th of September to receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹13.25 to shareholders. Calculating the last year's worth of payments shows that Oil and Natural Gas has a trailing yield of 5.7% on the current share price of ₹232.25. 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. We need to see whether the dividend is covered by earnings and if it's growing.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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 a comfortable 40% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 29% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Oil and Natural Gas

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Oil and Natural Gas has grown its earnings rapidly, up 22% a year for the past five years. Oil and Natural Gas is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Oil and Natural Gas has lifted its dividend by approximately 8.2% a year on average. 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 worth buying for its dividend? It's great that Oil and Natural Gas is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Oil and Natural Gas looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Oil and Natural Gas has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Oil and Natural Gas has 1 warning sign 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.