Coastal's (NSE:COASTCORP) Shareholders Will Receive A Smaller Dividend Than Last Year

Coastal Corporation Limited (NSE:COASTCORP) has announced that on 26th of October, it will be paying a dividend of₹0.22, which a reduction from last year's comparable dividend. This payment takes the dividend yield to 0.7%, which only provides a modest boost to overall returns.

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Coastal's Projected Earnings Seem Likely To Cover Future Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Coastal 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.

Looking forward, EPS could fall by 30.2% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 34%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Check out our latest analysis for Coastal

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 2015, the dividend has gone from ₹0.0375 total annually to ₹0.22. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Coastal has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Potential Is Shaky

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 Coastal's EPS has declined at around 30% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Coastal's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Coastal has 4 warning signs (and 2 which are significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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