Goodyear India (NSE:GOODYEAR) Has Announced That It Will Be Increasing Its Dividend To ₹100.00

The board of Goodyear India Limited (NSE:GOODYEAR) has announced that it will be paying its dividend of ₹100.00 on the 31st of August, an increased payment from last year's comparable dividend. This makes the dividend yield 1.8%, which is above the industry average.

See our latest analysis for Goodyear India

Goodyear India Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 291% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, EPS could fall by 4.2% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 277%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the annual payment back then was ₹7.00, compared to the most recent full-year payment of ₹20.00. This means that it has been growing its distributions at 11% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Goodyear India's EPS has declined at around 4.2% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Goodyear India will make a great income stock. While Goodyear India is earning enough to cover the payments, the cash flows are lacking. We don't think Goodyear India is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Goodyear India (of which 1 is a bit unpleasant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.