PPAP Automotive (NSE:PPAP) Is Paying Out A Larger Dividend Than Last Year

PPAP Automotive Limited's (NSE:PPAP) dividend will be increasing from last year's payment of the same period to ₹1.50 on 16th of October. This takes the annual payment to 0.7% of the current stock price, which is about average for the industry.

View our latest analysis for PPAP Automotive

PPAP Automotive's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, PPAP Automotive's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Unless the company can turn things around, EPS could fall by 31.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 60%, which we are pretty comfortable with and we think is feasible on an earnings basis.

PPAP Automotive's Dividend Has Lacked Consistency

Looking back, PPAP Automotive's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of ₹2.00 in 2015 to the most recent total annual payment of ₹1.50. This works out to be a decline of approximately 4.0% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. PPAP Automotive's EPS has fallen by approximately 31% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think PPAP Automotive will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think PPAP Automotive 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for PPAP Automotive (1 can't be ignored!) that you should be aware of before investing. Is PPAP Automotive not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.