Gujarat Mineral Development (NSE:GMDCLTD) Will Pay A Smaller Dividend Than Last Year

Gujarat Mineral Development Corporation Limited (NSE:GMDCLTD) has announced that on 27th of October, it will be paying a dividend of₹9.55, which a reduction from last year's comparable dividend. The yield is still above the industry average at 2.6%.

View our latest analysis for Gujarat Mineral Development

Gujarat Mineral Development's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Gujarat Mineral Development's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 6.6% over the next year. If the dividend continues on this path, the payout ratio could be 56% by next year, which we think can be pretty sustainable going forward.

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. The dividend has gone from an annual total of ₹3.00 in 2014 to the most recent total annual payment of ₹9.55. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. 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

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. Gujarat Mineral Development has seen EPS rising for the last five years, at 15% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Gujarat Mineral Development is earning enough to cover the payments, the cash flows are lacking. We don't think Gujarat Mineral Development is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 2 warning signs for Gujarat Mineral Development that investors should know about before committing capital to this stock. Is Gujarat Mineral Development not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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