Greenlam Industries (NSE:GREENLAM) Is Paying Out A Larger Dividend Than Last Year

The board of Greenlam Industries Limited (NSE:GREENLAM) has announced that it will be paying its dividend of ₹1.50 on the 3rd of September, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 0.4%, which is in line with the average for the industry.

Check out our latest analysis for Greenlam Industries

Greenlam Industries' Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, Greenlam Industries was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 187.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 6.4% by next year, which is in a pretty sustainable range.

Greenlam Industries Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 8 years was ₹0.10 in 2015, and the most recent fiscal year payment was ₹1.50. This implies that the company grew its distributions at a yearly rate of about 40% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Greenlam Industries has been growing its earnings per share at 14% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Greenlam Industries' payments are rock solid. While Greenlam Industries is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Greenlam Industries (1 is a bit concerning!) that you should be aware of before investing. Is Greenlam Industries 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.