Godrej Agrovet (NSE:GODREJAGRO) Has Announced That It Will Be Increasing Its Dividend To ₹9.50

Godrej Agrovet Limited (NSE:GODREJAGRO) will increase its dividend from last year's comparable payment on the 3rd of August to ₹9.50. This takes the dividend yield to 1.9%, which shareholders will be pleased with.

Check out our latest analysis for Godrej Agrovet

Godrej Agrovet's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Godrej Agrovet'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.

Over the next year, EPS is forecast to expand by 88.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.

Godrej Agrovet Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2018, the dividend has gone from ₹4.50 total annually to ₹9.50. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Godrej Agrovet has seen EPS rising for the last five years, at 11% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Godrej Agrovet's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Godrej Agrovet you should be aware of, and 2 of them are a bit concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.