Garden Reach Shipbuilders & Engineers (NSE:GRSE) Will Pay A Dividend Of ₹4.90

The board of Garden Reach Shipbuilders & Engineers Limited (NSE:GRSE) has announced that it will pay a dividend on the 19th of October, with investors receiving ₹4.90 per share. This takes the annual payment to 0.6% of the current stock price, which unfortunately is below what the industry is paying.

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Garden Reach Shipbuilders & Engineers' Future Dividend Projections Appear 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. 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 108.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 15% by next year, which is in a pretty sustainable range.

See our latest analysis for Garden Reach Shipbuilders & Engineers

Garden Reach Shipbuilders & Engineers' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of ₹3.70 in 2018 to the most recent total annual payment of ₹13.85. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. 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

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. Garden Reach Shipbuilders & Engineers has seen EPS rising for the last five years, at 34% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Garden Reach Shipbuilders & Engineers' Dividend

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

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 picked out 2 warning signs for Garden Reach Shipbuilders & Engineers that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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