V.I.P. Industries (NSE:VIPIND) Has Announced A Dividend Of ₹2.00

V.I.P. Industries Limited (NSE:VIPIND) will pay a dividend of ₹2.00 on the 23rd of February. This means that the annual payment will be 0.4% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for V.I.P. Industries

V.I.P. Industries' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, V.I.P. Industries' dividend was only 38% of earnings, however it was paying out 2,134% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 12%, so there isn't too much pressure on the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ₹1.00 in 2014 to the most recent total annual payment of ₹2.00. This means that it has been growing its distributions at 7.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. V.I.P. Industries might have put its house in order since then, but we remain cautious.

The Dividend Has Limited Growth Potential

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. Earnings per share has been sinking by 14% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for V.I.P. Industries that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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