ONGC is an Indian oil exploration company majority owned by government of India, i.e. it’s a PSU. As a stock, it has a very long history of dividends. It’s a company with solid business model and has highly reliable cashflows. If you are an Indian investor focusing on dividends, it would be strange if you do not hold shares of ONGC. Ask anyone to name few great Indian companies which have paid generous dividends. We can bet that ONGC would definitely figure in such a list. We ourselves have chosen it for our Dead Monk’s Portfolio. We personally hold ONGC and another oil explorer Cairn Indiaas long term investments.
This post is about ONGC’s dividends, frequency of payouts, payout ratios and all related information.
Why are we doing this? As already mentioned, we hold ONGC in our long term portfolio for primary purpose of dividend income. We are doing this to reaffirm our faith in ONGC of being a good dividend stock to hold for years to come. J As far as capital appreciation is concerned, we believe Cairn India is a better stock in oil sector.
Dividend Rate (%)
ONGC is known to be a regular dividend payer and this notion is validated by data. It has been consistently paying dividends for more than 10 years. The table below shows the dividend rates (as % of face value). The great thing is that the dividends have been continuously increasing during the last 5 years.
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| ONGC’s Dividend Rates (%) : Last 10 years |
Dividend Payout Ratio (%)
A company with high dividend payout ratio can mean two things: Either the company has no future investment plans OR high dividend payouts are temporary (due to some asset sale) and hence not sustainable. ONGC for last 10 years (!) has maintained a very stable payout ratio of 40% i.e. it shares 40% of its earnings with investors as dividends. This shows that company is balancing its growth (investment) plans and wealth sharing objective on a consistent basis.
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| ONGC’s Dividend Payout Ratio : Last 10 years |
Dividend Policy
Company’s dividend policy (available on its website) has the following 2 highlights:
- Factors to consider while deciding dividends: Future capital expenditure plans, profits earned during the financial year, cost of raising funds from alternate sources, cash flow position and applicable taxes including tax on dividends.
- As per govt.’s guidelines, all profit-making PSUs in oil sector (like ONGC) should declare the higher of a minimum dividend of 30 % on equity or a minimum dividend payout of 30 % of post-tax profit.
Since company has maintained 40% payout ratio for last 10 years, it is safe to assume that same would be maintained in future too. Since great companies generally increase their earnings over years, it can be safely assumed that dividends would increase in years to come.
How many times ONGC pays dividend in a year?
In last 8 years, ONGC has paid dividends twice every year. Interim dividend (generally higher than final dividend)is paid in December. This is followed by Final Dividend paid in September. We have plotted all dividend payouts by ONGC in last 12 years. The same can be seen below. This dividend calendar is a good depiction of when (& how much) to expect as dividends from ONGC every year.
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| Click to enlarge |
Though we haven’t discussed ONGC’s future business prospects, we believe that being a mature company with ageing oil fields (except those owned by its subsidiaries ONGC Videsh Ltd), it would be wrong to expect it to become a multi-bagger in years to come. But what can be expected is a stable flow of dividend income, stability in portfolio and potential of positive surprises in case there are any bumper oil & gas discoveries.
All in all, we would stay invested in ONGC and keep investing as and when its prices fall substantially.
Disclosures: Hold Long term investments in ONGC, Cairn India.