Oil and Natural Gas Corporation Limited (NSE:ONGC) has pleased shareholders over the past 10 years, by paying out dividends. The company is currently worth ₹2.32t, and now yields roughly 3.7%. Should it have a place in your portfolio? Let’s take a look at Oil and Natural Gas in more detail.

See our latest analysis for Oil and Natural Gas

5 questions to ask before buying a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is it the top 25% annual dividend yield payer?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has the amount of dividend per share grown over the past?

• Does earnings amply cover its dividend payments?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How well does Oil and Natural Gas fit our criteria?

The company currently pays out 38.3% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 35.8%, leading to a dividend yield of 5.0%. Moreover, EPS should increase to ₹24.44.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

In terms of its peers, Oil and Natural Gas produces a yield of 3.7%, which is high for Oil and Gas stocks.

Next Steps:

With this in mind, I definitely rank Oil and Natural Gas as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three important aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for ONGC’s future growth? Take a look at our free research report of analyst consensus for ONGC’s outlook.

2. Valuation: What is ONGC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ONGC is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.