1:2 bonus shares: Dividend paying stock yields 9.5%. Beats PPF, EPF, FD return

Dividend paying stocks can sometimes emerge a good bet against traditional risk-free investment options like Employees' Provident Fund (EPF), Public Provident Fund (PPF) or bank fixed deposit (FD). In last one year, a good number of stocks listed on Dalal Street have delivered better annual dividend yield than PPF, EPF or bank FD interest in this period. Shares of Indian Oil Corporation (IOC) Limited is one such stock. In last one year, the state-owned company announced dividend on two occasions whereas it declared bonus shares for once as well. Taking both dividends and issuance of bonus shares in last one year, the dividend yield of IOC shares come around 9.50 per cent, much higher than bank FD interest rates or PPF and EPF interest rates.

IOC dividend history

In last one year, IOC stocks traded ex-dividend on 9th February 2022 and 11th August 2022. On 9th February 2022, IOC share price traded ex-dividend for payment of ₹4 per equity share interim dividend. Similarly, on 11th August 2022, IOC shares traded ex-dividend for payment of ₹2.40 per equity share final dividend.

IOC bonus share history

However, there is a twist in between these two dividend payments. The PSU stock announced bonus shares in between these two dividend announcements. On 30th June 2022, IOC shares traded ex-bonus for issuance of bonus shares in the ratio of 1:2. This means, the state-owned company gave one bonus share for holding two IOC shares in one's stock portfolio. So, those who bought IOC shares one year ago, their shareholding surged 1.50 times after the bonus share issue, which means those shareholders got ₹3.60 ( ₹2.4 x 1.5) dividend per equity share in August 2022 instead of ₹2.40 apiece because their shareholding increased 1.50 times after issuance of bonus shares in 1:2 ration in between these two dividend payments.

IOC share price history

IOC share price around a year ago was ₹80 apiece. Those IOC shareholders who bought IOC shares around a year ago, their net dividend income from the stock is ₹7.60 ( ₹4.00 + ₹3.60). This means annual dividend yield of IOC stock is 9.50 per cent [(7.60/80) x 100].

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EPF, PPF, bank FD interest rate

Looking at the risk-free investment options mentioned above, EPF interest rate in FY 2022-23 has remained unchanged at 8.10 per cent whereas PPF interest rate in FY 2022-23 remained steady at 7.10 per cent. However, bank fixed deposit rates went up to a larger extend in last one year as some banks are offering up to 7 per cent annual bank fixed deposit interest rate. However, on a average bank FD rates offered by majority of the banks for one year is below 7 per cent and definitely not around or above 9.50 per cent.

IOC share price today on NSE is around ₹79.20 apiece, means near 1 per cent below its share price around a year ago. If we consider one per cent dip in IOC share price in last one year, even then dividend yield would enable an IOC share holder to pocket around 8.50 per cent return on one's money without booking any profit on one's investment.