Gujarat Apollo Industries (NSE:GUJAPOLLO) Is Paying Out A Dividend Of ₹2.00

Gujarat Apollo Industries Limited's (NSE:GUJAPOLLO) investors are due to receive a payment of ₹2.00 per share on 30th of October. Including this payment, the dividend yield on the stock will be 0.5%, which is a modest boost for shareholders' 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 Gujarat Apollo Industries' stock price has increased by 64% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Gujarat Apollo Industries

Gujarat Apollo Industries' Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Gujarat Apollo Industries' 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.

Unless the company can turn things around, EPS could fall by 9.1% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 20%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from ₹2.50 total annually to ₹2.00. This works out to be a decline of approximately 2.2% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Come By

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. It's not great to see that Gujarat Apollo Industries' earnings per share has fallen at approximately 9.1% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Gujarat Apollo Industries' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Gujarat Apollo Industries' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Gujarat Apollo Industries (of which 1 is a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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