Garden Reach Shipbuilders & Engineers' (NSE:GRSE) Dividend Will Be ₹1.44

The board of Garden Reach Shipbuilders & Engineers Limited (NSE:GRSE) has announced that it will pay a dividend of ₹1.44 per share on the 20th of October. Despite this raise, the dividend yield of 0.5% is only a modest boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Garden Reach Shipbuilders & Engineers' stock price has increased by 32% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Garden Reach Shipbuilders & Engineers

Garden Reach Shipbuilders & Engineers' Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Garden Reach Shipbuilders & Engineers' 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.

The next year is set to see EPS grow by 14.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

Garden Reach Shipbuilders & Engineers' Dividend Has Lacked Consistency

It's comforting to see that Garden Reach Shipbuilders & Engineers has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2018, the dividend has gone from ₹3.70 total annually to ₹9.36. This means that it has been growing its distributions at 17% 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 Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Garden Reach Shipbuilders & Engineers has seen EPS rising for the last five years, at 24% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Garden Reach Shipbuilders & Engineers 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 Garden Reach Shipbuilders & Engineers 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Garden Reach Shipbuilders & Engineers has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.