Power & Instrumental (Gujarat) (NSE:PIGL) Has Affirmed Its Dividend Of ₹0.20

Power & Instrumental (Gujarat) Limited's (NSE:PIGL) investors are due to receive a payment of ₹0.20 per share on 27th of October. This payment means the dividend yield will be 0.1%, which is below the average for the industry.

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Power & Instrumental (Gujarat)'s Payment Could Potentially Have Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Power & Instrumental (Gujarat) was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 9.3% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 2.6% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Power & Instrumental (Gujarat)

Power & Instrumental (Gujarat) Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The most recent annual payment of ₹0.20 is about the same as the annual payment 2 years ago. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Power & Instrumental (Gujarat) Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Power & Instrumental (Gujarat) has seen EPS rising for the last five years, at 9.3% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We should note that Power & Instrumental (Gujarat) has issued stock equal to 41% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Power & Instrumental (Gujarat)'s Dividend

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 Power & Instrumental (Gujarat) is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Power & Instrumental (Gujarat) you should be aware of, and 1 of them is a bit unpleasant. If you are a dividend investor, you might also want to look at our curated list of high yield 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.