Dividend Investing - Oil India Limited




Thursday, 26 June 2014

Dividend Investing is a well known long term strategy that is employed by investors worldwide. With recurring tax free returns, this strategy can develop into a very safe method if used wisely and hold the potential for delivering higher returns on investment compared to traditional bank deposits.

Today we will look into the prospects of Oil India Limited and how investing in this stock can yield good returns over extended periods of time. Oil India Limited is traded on both the National Stock Exchange and Bombay Stock Exchange, India. Currently trading at 587.90, the dividend prospects of the stock look attractive. Here's why one should consider investing in this stock.

Current Ratio of 3.37 depicts excellent financial health of the company and goes a long way in saying that the company is virtually debt free. This obviously means that the company will be able to convert a larger portion of its profits into dividends for its investors. In the investment perspective, this could mean higher dividends and higher dividend yields for investors in the long run. A company with such good financial health is unlikely to ruin its stature and more so in any short time frame. This creates a safe haven for investors assuring them that their money is in safe hands.

When investing for dividends we generally do not think of bailing out since the ideal holding period of such investments is "forever". If for any reason the stock fails to meet its expectations, a bail out option is always available by selling the stock in the market.

The latest dividend yield for Oil India Ltd is 5.10 % which is simple fantastic. This goes a long way in speaking of the financial health of the company since it has been able to pay its investors a good return on investment. The company has also maintained a healthy dividend payout ratio of above 30 % for the last 10 years, which definitely means that they care for their investors. Not only are they sharing a healthy chunk of profits, they have been dong this for a decade. A firm dividend policy in the hands of good management can be the only route to such consistency.

A look into the progressive annual dividend yields will reveal an astounding feature of this stock in a moment.

Year Divident Yield(EoY) % Growth
2010 2.8 -
2011 2.7 -3.57142857
2012 3.8 40.74074074
2012 5.7 50

The last two years have seen excellent growth in dividend yields which could mean even higher returns on investment with progression in time. A cumulative growth in dividend yield, which is basically a measure of how much return the investment is earning could mean exponential growth in earnings. Such growth can only be expected from companies which have firm policies on dividends and for whom investor interest is of prime interest.

Oil India Limited looks like a good choice for dividend investors - a firm payout history and strong financial health hold the promise of a bright financial future for dedicated long term investors.

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