PPAP Automotive's (NSE:PPAP) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of PPAP Automotive Limited (NSE:PPAP) has announced that it will be paying its dividend of ₹1.50 on the 16th of October, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 0.7%, which is fairly typical for the industry.

Check out our latest analysis for PPAP Automotive

PPAP Automotive's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, PPAP Automotive's earnings easily covered the dividend, but free cash flows were negative. 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.

Looking forward, EPS could fall by 31.4% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 60%, which is definitely feasible to continue.

PPAP Automotive's Dividend Has Lacked Consistency

PPAP Automotive has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 7 years was ₹2.00 in 2015, and the most recent fiscal year payment was ₹1.50. The dividend has shrunk at around 4.0% a year during that period. 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 see if earnings per share is growing. PPAP Automotive's EPS has fallen by approximately 31% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While PPAP Automotive is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, PPAP Automotive has 4 warning signs (and 1 which is a bit concerning) we think you should know about. Is PPAP Automotive not quite the opportunity you were looking for? Why not check out our selection of top 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.