Vedanta or NALCO - Which is the Better Dividend Stock?

Have you heard stories at a dinner party where people elaborate how they pay off their monthly expenses from the dividends they receive? I sure have...

Isn't that great? Tens of thousands of rupees received in the form of dividends to pay off your bills!

While dividend investing is an evergreen strategy in the stock markets and will continue to prevail in the years to come, it is more so relevant in the current environment where uncertainty is ruling the stock market.

Investing in a stable dividend-paying company will let you sleep peacefully at night. The business will generate a steady passive income. The more stable the business, the higher the share of profits that can be distributed.

Don't just think of dividends as a source of income. They provide stability to your portfolio and can even offer higher returns in the long-term.

In fact, there is even a study which proves long-term returns from dividend stocks are higher than non-dividend stocks.

All else being equal, a company with a higher dividend payout is more stable that a similarly sized competitor with a lower dividend payout.

Keeping that in mind, we compare the top metal stocks in India - Vedanta and NALCO, and how they compete against each other on dividends.

Let's get started...

Business Overview

Vedanta is a diversified natural resource company engaged in exploring, extracting and processing minerals and oil & gas.

The group engages in the exploration, production and sale of zinc, lead, silver, copper, aluminium, iron ore, nickel and oil & gas.

Its other businesses include commercial power generation, steel manufacturing & port operations in India and manufacturing of glass substrate in South Korea and Taiwan.

The key business segments for Vedanta (in terms of revenue generation) are aluminum, zinc, lead & silver and oil & gas.

NALCO was incorporated in 1981, and is a government company that operates in mining, metals, and power sectors under the ownership of the ministry of mines and the government of India.

It is the country's largest integrated bauxite-alumina-aluminium-power complex, with bauxite mining, alumina refining, aluminium smelting, and casting.

It is also the lowest-cost producer of metallurgical grade alumina in the world and lowest-cost producer of bauxite in the world.

Dividend Payout per share

Vedanta:

Picture this. In 1994, Vedanta paid a dividend of Rs 1.65 per share. In 2022, the dividend amount was astonishingly higher at Rs 45 per share!

This was till 2022. The company went one step further and declared even higher dividend payout per share in financial year 2022-23.

So far this year, the company has declared two interim dividends - Rs 31.5 per share and Rs 19.5 per share. So this year's payout is already higher than the previous year at Rs 51 per share.

More interim dividends and the final dividend paid at the end of every year are yet to be declared.

To put things into context, Vedanta is paying dividends since 1994 with not a single year of gap in between.

2022 was the year when Vedanta rewarded its shareholders with a total dividend amount of Rs 166,890 m.

Take a look at the table below to get a gist of Vedanta's rich history of paying dividends.

Consistent Dividends at a Growing Rate

Year Ending	Dividend Amount (Rs m)	Dividend Yield (%)	Dividend per share (Rs)	Dividend (%)	Face value (Rs)
31-Mar-22	1,66,890.0	11.2	45.0	4500.0	1.0
31-Mar-21	35,190.0	4.2	9.5	950.0	1.0
31-Mar-20	14,440.0	6.0	3.9	390.0	1.0
31-Mar-19	70,050.0	10.3	18.9	1885.0	1.0
31-Mar-18	78,810.0	7.6	21.2	2120.0	1.0
31-Mar-17	73,240.0	7.1	19.5	1945.0	1.0
31-Mar-16	20,353.9	3.9	3.5	350.0	1.0
31-Mar-15	12,156.0	2.2	4.1	410.0	1.0
31-Mar-14	9,635.8	1.7	3.3	325.0	1.0
31-Mar-13	86.9	0.1	0.1	10.0	1.0
31-Mar-12	3,476.4	2.1	4.0	400.0	1.0
31-Mar-11	3,041.8	1.2	3.5	350.0	1.0
31-Mar-10	2,700.6	0.7	3.3	325.0	1.0
31-Mar-09	1,771.3	2.2	2.3	225.0	1.0
31-Mar-08	1,771.3	1.4	45.0	450.0	10.0
31-Mar-07	1,574.5	2.4	40.0	400.0	10.0
31-Mar-06	1,574.5	3.1	40.0	400.0	10.0
31-Mar-05	885.7	3.1	22.5	225.0	10.0
31-Mar-04	196.8	2.1	10.0	100.0	10.0
31-Mar-03	49.2	4.1	2.5	25.0	10.0
31-Mar-02	59.0	6.2	3.0	30.0	10.0
31-Mar-01	59.0	5.7	3.0	30.0	10.0
31-Mar-00	29.5	2.3	1.5	15.0	10.0
31-Mar-99	49.2	2.1	2.5	25.0	10.0
31-Mar-98	49.2	0.9	2.5	25.0	10.0
31-Mar-97	49.2	1.2	2.5	25.0	10.0
31-Mar-96	46.1	0.6	2.5	25.0	10.0
31-Mar-95	29.5	0.3	1.7	16.5	10.0
31-Mar-94	24.4	-	1.65	16.5	10.0

Data Source: Ace Equity

Vedanta's 2021-22 annual report says the company will distribute a minimum 30% of its attributable profit after tax as dividends.

In fact, the current financial year's dividend payout is so high that its parent Vedanta Resources could use that to pay-off substantial portion of its debt.

NALCO:

Coming to NALCO, the aluminum company has a rich dividend history like Vedanta, having declared dividends since 1995.

Although the growth rate is not as high as Vedanta.

Here's a table showing the entire history of dividends paid by NALCO.

NALCO Dividend History

Year Ending	Dividend Amount (Rs m)	Dividend Yield (%)	Dividend per share (Rs)	Dividend (%)	Face value (Rs)
31-Mar-22	9,183.2	5.3	6.5	130.0	5.0
31-Mar-21	4,606.1	6.5	3.5	70.0	5.0
31-Mar-20	2,798.4	9.4	2.8	55.0	5.0
31-Mar-19	8,395.3	10.4	5.8	115.0	5.0
31-Mar-18	9,084.8	8.5	5.7	114.0	5.0
31-Mar-17	1,849.4	3.7	2.8	56.0	5.0
31-Mar-16	3,221.6	5.0	2.0	40.0	5.0
31-Mar-15	4,510.2	3.8	1.8	35.0	5.0
31-Mar-14	3,865.9	3.8	1.5	30.0	5.0
31-Mar-13	3,221.5	3.8	1.3	25.0	5.0
31-Mar-12	2,577.2	1.8	1.0	20.0	5.0
31-Mar-11	2,577.2	1.1	1.0	20.0	5.0
31-Mar-10	1,610.7	0.6	2.5	25.0	10.0
31-Mar-09	3,221.6	2.3	5.0	50.0	10.0
31-Mar-08	3,865.9	1.3	6.0	60.0	10.0
31-Mar-07	4,832.3	3.2	7.5	75.0	10.0
31-Mar-06	3,221.6	1.7	5.0	50.0	10.0
31-Mar-05	2,577.2	2.3	4.0	40.0	10.0
31-Mar-04	2,577.2	2.2	4.0	40.0	10.0
31-Mar-03	3,865.9	8.5	6.0	60.0	10.0
31-Mar-02	2,577.3	4.9	4.0	40.0	10.0
31-Mar-01	2,577.2	7.3	4.0	40.0	10.0
31-Mar-00	1,288.7	3.9	2.0	20.0	10.0
31-Mar-99	773.2	-	1.2	12.0	10.0
31-Mar-98	1,288.6	-	1.0	10.0	10.0
31-Mar-97	1,030.9	-	0.8	8.0	10.0
31-Mar-96	451.0	-	0.4	3.5	10.0
31-Mar-95	386.6	-	0.3	3.0	10.0

Source: ACE Equity

So far this year, NALCO has not declared any interim dividend.

If we compare both companies on dividend payout per share, Vedanta has kept itself ahead by declaring much higher payouts than NALCO.

Over the last decade, Vedanta has rewarded its investors with over Rs 480 bn through dividends alone. The same figure for NALCO stands at 50.7 bn.

Here's a table comparing the two companies on dividend payout per share:

Vedanta vs NALCO - Dividend Payout Per Share in Recent Years

	FY18	FY19	FY20	FY21	FY22
Dividend Payout per share (Rs)
Vedanta	21.2	18.9	3.9	9.5	45.0
NALCO	5.7	5.8	2.8	3.5	6.5
Growth (%)
Vedanta	9%	-11%	-79%	144%	374%
NALCO	104%	1%	-52%	27%	86%
5 Year Average (Rs)
Vedanta	19.7
NALCO	4.8

Source: Equitymaster

Dividend Yield

As interest rates rise worldwide, there is a growing concern about how it may impact various asset classes.

To ride this volatile phase, people usually invest in high dividend yield stocks.

When there's a stock market selloff, high dividend yield stocks are available at a bargain. You can invest with a huge margin of safety so when things turn around, you have the opportunity to earn high returns.

Let's take a look at how Vedanta and NALCO compete on dividend yields.

Vedanta: Starting with a modest dividend yield of just 0.3% in financial year 1993- 1994, the company has increased the dividend yield exponentially to as high as 17% over the years.

In its entire history since listing on the bourses (in 1996), Vedanta's dividend yield has gone below 1% only five times. In financial year 2021-22, Vedanta's dividend yield was 11.2%, taking into consideration its end of year (eoy) share price.

This year, the company has already declared two interim dividends, totaling in a payout of Rs 51 per share.

As Vedanta share price is falling this year and is currently trading near its lowest levels, the dividend yield is much higher at over 17%!

NALCO:

For NALCO, the dividend yields are of course not as high as Vedanta. But it has maintained consistency of having yields above 5% for consecutive years.

The dividend yield for NALCO has not dropped below 1% since 2011 while for Vedanta, the yields have varied.

In financial year 2021-22, NALCO paid dividend of Rs 6.5 per share which results in a dividend yield of 5.3% at its eoy share price.

If we compare both companies on dividend yields, Vedanta again has an advantage as it averages better on different time durations.

Here's a table comparing both companies on dividend yields.

Vedanta vs NALCO - Dividend Yield in Recent Years

	FY18	FY19	FY20	FY21	FY22
Dividend Payout per share (Rs)
Vedanta	21.2	18.9	3.9	9.5	45.0
NALCO	5.7	5.8	2.8	3.5	6.5
EOY Price (Rs)
Vedanta	278.3	183.8	64.8	228.7	403.5
NALCO	66.8	55.4	29.2	54.0	121.8
Dividend Yield (%)
Vedanta	7.6	10.3	6.0	4.2	11.2
NALCO	8.5	10.4	9.4	6.5	5.3

Source: Equitymaster

On the dividend yield comparison, NALCO has achieved a higher yield 4 out of 5 times compared to Vedanta in the past five years.

Although Vedanta has taken a lead this year, with its dividend yield on CMP coming at 17%.

Dividend Payout Ratio

Dividend payout ratio is measured by the amount of dividend a company pays in a year divided by the net profit for the year.

The market likes a payout that is high and stable or a payout that is growing.

Let's see how both the companies fare on this ratio.

Vedanta:

Vedanta's dividend payout ratio was 89% in financial year 2021-22.

The company has come a long way in increasing this payout ratio. Between 2003 and 2014, the company had a modest payout ratio ranging between 10-30%.

The dividend payout ratio peaked in 2017 at 104%.

The following table shows the adjusted dividend paid by Vedanta to its shareholders between 2018-2022.

Vedanta Dividend Payout Ratio

Year	FY18	FY19	FY20	FY21	FY22
Dividend per share (Rs)	21.2	18.9	3.9	9.5	45.0
Net profit (Rs m)	103,420	70,650	-66,640	116,020	188,020
Dividend payout ratio (%)	76.3	99.3	-21.8	30.5	89.0

Data Source: Ace Equity

NALCO:

NALCO's dividend payout ratio was 40.5% in financial year 2021-22.The following table shows the adjusted dividend paid by NALCO to its shareholders between 2018-2022.

Year	FY18	FY19	FY20	FY21	FY22
Dividend per share (Rs)	5.7	5.8	2.8	3.5	6.5
Net profit (Rs m)	13,422	17,337	1,362	12,994	29,514
Dividend payout ratio (%)	82.1	61.9	376.6	49.5	40.5

Data Source: Ace Equity

If we compare both the companies on dividend payout ratio, NALCO has an edge over Vedanta as its ratio has remained constant and consistent.

Vedanta has posted losses in some years which has affected its payout over the years.

Vedanta vs NALCO - Dividend Payout Ratio (%)

	Dividend Payout Ratio (%)
Year	Vedanta	NALCO
2015	-7.8	34.1
2016	-8.5	65.5
2017	104.0	81.1
2018	76.3	82.1
2019	99.3	61.9
2020	-21.8	376.6
2021	30.5	49.5
2022	89.1	40.5

Data Source: Ace Equity

Can Vedanta and NALCO continue to pay high dividends?

Dividends are only sustainable to the extent a company's earnings are sustainable. If for some reason, earnings were to decline, high dividends of today may count for nothing.

Also, dividend payments are highly dependent on the management policy.

Therefore, even a dividend paymaster can become a dividend dud.

Let's analyze whether Vedanta and NALCO will be able to continue their dividend paying streak in the future.

Vedanta:

Post the Covid-19 stock market selloff, Vedanta started to report improving operating performance, supported by stable volumes across business segments and high commodity prices.

A sharp rally in commodity prices boosted its earnings and the company posted back-to-back years of record profits.

The high dividend payment was a reward for the shareholders, a way to share the supernormal profits generated by the company in the financial years 2021 and 2022.

But considering the profits in the near term are likely to recede as commodity prices have corrected, the high dividend payments may not continue.

In this year's annual report, Vedanta has said it will distribute a minimum 30% of its attributable profit after tax as dividends.

Vedanta also has plans to ramp up capital investment to as much as US$2 bn in financial year 2022-23. This is the highest in previous six years.

The company is slowly diversifying its operations and foraying into high growth sectors. It recently forayed into the manufacture of semiconductor and display units.

It's acquisition of Goa-based Nicomet in 2021 was also notable, making Vedanta the only producer of nickel in India. Nickel is likely to see huge demand going forward as it is used for making electric vehicles and EV batteries.

These tailwinds will make sure that Vedanta does not get bogged down by dividend payouts henceforth.

NALCO:

Much like Vedanta, NALCO got a boost to its operational performance and earnings owing to higher aluminium prices. In financial year 2021-22, the company reported record earnings.

NALCO being a cyclical stock, its net profit is closely linked to aluminum prices. The company doubles it earnings on every US$400 a tonne increase in aluminium price.

However, aluminium prices have been extremely volatile recently, owing to geopolitical issues that the world has been dealing with.

Moreover, NALCO has been facing issues in the procurement of coal due to disruption in the global demand-supply.

So, NALCO's streak of high dividend payouts is unlikely to continue into the following year.

Global aluminum companies have pointed out for uncertainties going forward. These include the impact of China's stimulus program, disruption in exports from Russia, and the threat of further curtailment in production given high global energy prices.

If not higher payouts, NALCO will look to continue its streak of paying dividends. The company's MD and chairman in February 2022 said it will use cash reserves for paying out dividends in the future.

Which dividend stock is better?

While both the companies are dividend paymasters, Vedanta is the one which scores well on the dividend metric. It has a higher dividend payout per share and higher yields compared to NALCO.

NALCO ranks better than Vedanta on the dividend payout ratio because Vedanta's payout ratio has varied significantly in between owing to loss making years.

Also, if we consider the growth prospects, Vedanta is one step ahead, as it has exposure to the semiconductor industry in India and the niche nickel market.

In conclusion, while both these companies will continue to pay dividends, Vedanta will be the one making higher dividend payouts.

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...