Patanjali Foods (NSE:PATANJALI) Is Increasing Its Dividend To ₹6.00

The board of Patanjali Foods Limited (NSE:PATANJALI) has announced that it will be paying its dividend of ₹6.00 on the 9th of October, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 0.5% is only a modest boost to shareholder returns.

See our latest analysis for Patanjali Foods

Patanjali Foods' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Patanjali Foods' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 49.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 16%, which is in the range that makes us comfortable with the sustainability of the dividend.

Patanjali Foods Doesn't Have A Long Payment History

It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Patanjali Foods' EPS has fallen by approximately 41% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Patanjali Foods' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Patanjali Foods' payments are rock solid. While Patanjali Foods is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Patanjali Foods that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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