Godrej Agrovet's (NSE:GODREJAGRO) Upcoming Dividend Will Be Larger Than Last Year's

Godrej Agrovet Limited's (NSE:GODREJAGRO) dividend will be increasing from last year's payment of the same period to ₹10.00 on 6th of August. This makes the dividend yield 1.2%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Godrej Agrovet's stock price has increased by 56% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Godrej Agrovet

Godrej Agrovet's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Godrej Agrovet's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 97.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.

Godrej Agrovet Doesn't Have A Long Payment History

It is great to see that Godrej Agrovet has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2018, the annual payment back then was ₹4.50, compared to the most recent full-year payment of ₹10.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Godrej Agrovet has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Godrej Agrovet May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Although it's important to note that Godrej Agrovet's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 1.9% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. As an example, we've identified 2 warning signs for Godrej Agrovet that you should be aware of before investing. 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.

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