Gujarat Apollo Industries (NSE:GUJAPOLLO) Will Pay A Dividend Of ₹2.00

Gujarat Apollo Industries Limited (NSE:GUJAPOLLO) will pay a dividend of ₹2.00 on the 30th of October. Based on this payment, the dividend yield will be 0.7%, which is fairly typical for the industry.

Check out our latest analysis for Gujarat Apollo Industries

Gujarat Apollo Industries' Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Gujarat Apollo Industries' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

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

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹2.50 in 2014, and the most recent fiscal year payment was ₹2.00. Doing the maths, this is a decline of about 2.2% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Gujarat Apollo Industries' EPS has declined at around 9.1% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Gujarat Apollo Industries is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Gujarat Apollo Industries has 3 warning signs (and 1 which is a bit concerning) we think you should know about. Is Gujarat Apollo Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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