Top 5 Energy Stocks to Watch Out for Big Dividends in 2024

The Indian energy sector is riding a wave of success, with companies like oil marketing companies (OMCs) leading the charge. This upsurge is evident in the Nifty Energy index, which has skyrocketed 72% in the past year, significantly outperforming the broader Nifty 50's respectable 27% growth. The energy sector is well on its way to becoming a market leader.

This positive trend extends directly to OMCs. After overcoming past hurdles, these companies are back in the spotlight, boasting record-breaking profits and fierce competition. This resurgence is fuelled by a potent mix of factors, including robust demand for petroleum products and the potential for higher refining margins.

The positive financial performance translates directly into benefits for shareholders. OMCs, traditionally known for their generous dividend payouts, are expected to continue this trend.

Keeping this in mind, we highlight the top five energy companies to watch out for big dividends in 2024.

#1 ONGC

At the top of our we have Oil and Natural Gas Corporation (ONGC).

ONGC is India's largest crude oil and natural gas producer, accounting for roughly 70% of the country's domestic production.

Its wholly-owned subsidiary, ONGC Videsh, is the largest Indian multinational in the energy space, participating in 36 oil and gas properties across 17 countries.

Over the years, the company has maintained a healthy mix of mature and new oil fields to ensure continuous production growth. Moreover, it has been proactively implementing well interventions and advancing new well-drilling activities.

Recently, the company announced that its deep-water block in the Krishna-Godavari basin off the coast of the Bay of Bengal has started producing oil. This will boost ONGC's overall oil and gas output by 11% and 15%, respectively. At peak performance, this project is expected to yield a significant 45,000 barrels of oil per day and over 10 million metric standard cubic meters of gas daily.

ONGC Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	28.50%	-6.10%	-22.40%	57.60%	28.40%
Operating Profit Margin (%)	18.20%	14.50%	16.50%	16.60%	12.40%
Net Profit Margin (%)	7.40%	2.70%	5.90%	9.20%	4.80%
Return on Capital Employed(%)	19.30%	8.40%	11.00%	17.30%	13.60%
Return on Equity (%)	16.10%	5.40%	10.00%	20.50%	12.10%

Data Source: Ace Equity

Between 2019-2023, the sales and profit growth has been resilient, growing at a 5-year CAGR of 13.6% and 4.7%, respectively. The Return on Capital Employed and Return on Equity (RoE) has been rangebound, averaging at 13.9% and 12.8%, respectively. The relatively robust performance of the business comes from the rally in the crude oil prices and growing production.

The record-breaking profits over the years, have bolstered ONGC's financial health, paving the way for significant capital expenditure.

The company is allocating Rs 300 billion (bn) annually for its core exploration and production activities. Moreover, the oil major aims to set aside surplus cash for future investments, a calculated shift beyond conventional E&P.

Leading the charge into new territory is ONGC's investment in OPaL, a green energy initiative. It also aims to invest around Rs 1 trillion (tn) by 2030 in renewable energy.

The company has some debt on its books (debt to equity of 0.46 in 2023). However, this hasn't stopped it from consistently delivering dividends, boasting a 5-year dividend yield of 5.8%.

The last financial year (2023) witnessed a remarkable jump (70.3%) in net profit, translating to a 7% increase in dividend per share (DPS). This resulted in a rise in dividend yield from 6.4% to 7.5%.

With the current year's profits also looking promising, shareholders can expect continued favourable returns. The company has already announced two interim dividends in the first nine months of 2024, totalling Rs 9.75 per share.

To know more about the company, check out its financial factsheet and latest financial results.

#2 GAIL

Next on our list is GAIL.

GAIL is one of India's leading integrated natural gas companies that deal in liquid hydrocarbons and petrochemicals. It's gas-pipeline transmission business is a natural monopoly and the company enjoys a strong market franchise in this business.

Between 2019-2023, the company revenues and net profit reported a 5-year CAGR of 21.6% and 3.1%, respectively. This growth comes from the substantial demand for natural gas during the same period in tandem with expansion in pipelines, petrochemicals and city gas distribution (CGD) projects.

GAIL Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	39.90%	-4.10%	-21.20%	60.60%	56.60%
Operating Profit Margin (%)	14.30%	14.60%	14.60%	17.60%	6.00%
Net Profit Margin (%)	8.60%	13.10%	10.70%	13.20%	3.80%
Return on Capital Employed(%)	21.50%	20.60%	13.60%	23.70%	10.00%
Return on Equity (%)	14.90%	20.00%	12.00%	21.00%	8.70%

Data Source: Ace Equity

Its 5-year average RoE and RoCE were at 17.9% and 15.3%, respectively.

Their long-term gas supply deals, both domestically and internationally, ensure a steady stream of fuel, keeping the revenue surging. This, combined with their rock-solid financial health, positions GAIL for explosive revenue and profit growth in the years to come.

GAIL has a healthy debt-to-equity ratio of 0.25x, allowing it to expand with ease.

IGL has unveiled an ambitious capital expenditure (capex) plan of around Rs 170 bn. A significant portion (Rs 30 bn) is earmarked for expanding their pipeline network followed by petrochemicals (Rs 44 bn). A noteworthy Rs 30 bn is dedicated to achieving net-zero emissions. The capex plan also includes Rs 7.5 bn for operational efficiency improvements, further boosting profitability, and the balance to support the growth of their joint ventures and subsidiaries.

Despite expanding in the past, the company has been paying dividends consistently since 2003 and will continue to do so. The company's 5-year average dividend yield stands at an admirable 5.8%.

Over the nine months ending in 2024, the lender's net profit has surged by an impressive 63% year-on-year. Hence, there's a favourable likelihood of rewarding its shareholders generously.

The company has already announced an interim dividend of Rs 5.5 per share.

To know more about the company, check out its financial factsheet and latest quarterly results.

#3 Indrapastha Gas

Third on our list is Indrapastha Gas.

Indraprastha Gas is a leading natural gas distribution company in India. It supplies compressed natural gas (CNG) and piped natural gas (PNG) to residential, commercial, and industrial customers in the National Capital Region of Delhi.

The company enjoys long-term natural gas sourcing tie-ups with government and other private companies, ensuring steady revenue generation and long-term visibility.

Indrapastha Gas Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	27.40%	12.50%	-23.70%	56.00%	81.90%
Operating Profit Margin (%)	21.90%	23.40%	29.60%	24.40%	14.50%
Net Profit Margin (%)	13.20%	17.40%	21.60%	17.70%	10.50%
Return on Capital Employed(%)	32.20%	32.60%	24.70%	28.40%	27.70%
Return on Equity (%)	21.20%	25.80%	20.10%	21.60%	21.10%

Data Source: Ace Equity

The business has done well. Between 2019-2023, its revenue and net profit have more than doubled. The RoCE and the RoE have registered a 5-year average of 29.1% and 21.9%, respectively.

A large part of the growth stems from long-term contracts in tandem with the high demand for natural gas.

Indraprastha Gas, boasting a debt-free financial position, is seizing the CNG opportunity. With car and commercial vehicle manufacturers increasingly offering CNG variants, IGL is strategically bulking up its infrastructure.

The company is focusing on enhancing its compression capacity to ensure a steady supply of CNG. Additionally, it is actively setting up more Compressed Bio-Gas (CBG) plants, promoting a cleaner fuel alternative. To cater to the rising preference for clean transportation options, the company is also expanding its network of Liquefied Natural Gas (LNG) stations. It has outlined a capex of Rs 14 bn for the financial year 2024, 20% of which will be for these expansions.

IGL prioritizes shareholder value. In the financial year 2023, the company distributed a generous dividend of Rs 13 per share, translating to an attractive dividend yield of 3%.

The company's financial performance continues to impress. IGL's profits have skyrocketed by a 22% year-on-year in the first nine months of 2024. Considering this stellar performance, shareholders can confidently expect IGL to maintain its commitment to delivering favourable returns going forward.

So far, the company has announced an interim dividend of Rs 4 per share.

To know more about the bank, check out its financial factsheet and latest financial results.

#4 IOCL

Fourth on our list is the Indian Oil Corporation (IOC).

IOCL is the second largest player in the domestic petrochemical market in the country and a key exporter, supplying these products to over 70 countries worldwide. The company owns and operates 11 of India's 23 refineries with a combined refining capacity of 80.7 MTPA.

It also enjoys a massive pipeline network stretching over 11,750 kilometres. This impressive network boasts a throughput capacity of 85.5 million tonnes per annum (mtpa) for crude oil and petroleum products.

The state-owned fuel retailer has performed exceedingly well in the past few years. After a rough patch during COVID, the business is back on track. The company's net profits for the first nine months of 2024 have already surpassed the entirety of their 2023 profits - a clear sign of a remarkable turnaround.

IOCL is resisting calls for daily price revisions. It argues that the current market volatility, with prices fluctuating wildly, makes daily adjustments impractical. Additionally, it hasn't fully recovered from past losses.

IOCL Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	25.20%	-7.90%	-23.50%	57.90%	42.70%
Operating Profit Margin (%)	6.20%	3.40%	8.50%	6.80%	3.60%
Net Profit Margin (%)	2.80%	-0.30%	4.10%	3.40%	1.20%
Return on Capital Employed(%)	15.90%	-0.30%	15.80%	16.60%	8.40%
Return on Equity (%)	15.30%	-1.80%	21.00%	21.00%	8.60%

Data Source: Ace Equity

The company has a strong track record of rewarding shareholders, with record-breaking dividend yields of 13% and 10% in the financial year 2021 and 2022 respectively, followed by a healthy 3.9% in 2023. Considering the current surge in profits in the nine months ending 2024 (400%), shareholders can be optimistic about the company's continued commitment to delivering strong returns.

So far, the company has announced an interim dividend of Rs 5 per share.

To know more about the company, check out its's financial fact sheet and quarterly results.

#5 Oil India

Last on our list is Oil India, a Ministry of Petroleum and Natural Gas undertaking.

Oil India is a fully integrated oil and natural gas company that explores, develops, produces and transports crude oil, natural gas and liquified petroleum gas (LPG).

Apart from its core business, the company has also ventured into renewable energy where it generates electricity through solar, wind and green hydrogen sources.

The constant expansion undertaken by the company has allowed it to ascend to the second-largest oil and natural gas company in the country. In 2023, Oil India contributed 10% of the country's crude oil production.

Oil India Financial Snapshot (2019-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	27.30%	33.70%	-5.60%	44.10%	36.00%
Operating Profit Margin (%)	48.70%	32.10%	30.20%	38.80%	39.00%
Net Profit Margin (%)	23.50%	24.30%	18.40%	22.40%	24.00%
Return on Capital Employed(%)	12.40%	14.20%	12.70%	22.00%	27.00%
Return on Equity (%)	11.20%	19.20%	17.70%	24.80%	28.50%

Data Source: Ace Equity

Between 2019-2023, the business has extended on the back of steady growth in volumes. While revenue has more than doubled the profits have tripled.

This has helped boost the 5-year RoCE and RoE, averaging at 17.7% and 20.3%, respectively.

Looking ahead, Oil India aims to enhance its business further, mimicking its past growth trajectory. The company has outlined a capex of Rs 60 billion (bn) for the financial year 2025 geared towards its refineries and drilling and exploration business. This expansion will be funded via a mix of debt and internal accruals.

The company maintains a healthy debt-to-equity ratio of 0.5 (financial year 2023). Despite carrying some debt, OIL India has consistently prioritized shareholder returns. It has been paying dividends since 2010, boasting a remarkable 5-year average dividend yield of a whopping 7.3%.

Given the strong performance in 2023, shareholders can confidently expect OIL to maintain its commitment to delivering rewarding returns going forward.

The company has already announced two interim dividends in the first nine months of 2024, totalling Rs 12, implying a dividend yield of 1.9%.

To know more about the company, check out its financial factsheet and latest quarterly results.

In conclusion

The Indian energy sector offers a promising landscape for investors looking for stocks with strong earnings growth potential. But despite the strong prospects, investors should exercise caution and closely monitor these stocks.

The performance of a company is greatly influenced by market conditions, industry trends, and economic factors, particularly during expansion phases.

Thus, it is essential to thoroughly assess the fundamental aspects of each company, ensuring investment decisions align with individual risk tolerance and investment objectives.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...