Varun Beverages (NSE:VBL) Is Paying Out A Dividend Of ₹1.25

The board of Varun Beverages Limited (NSE:VBL) has announced that it will pay a dividend on the 29th of August, with investors receiving ₹1.25 per share. This payment means the dividend yield will be 0.2%, which is below the average for the industry.

Check out our latest analysis for Varun Beverages

Varun Beverages' Payment Has Solid Earnings Coverage

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

The next year is set to see EPS grow by 72.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 10% by next year, which is in a pretty sustainable range.

Varun Beverages Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of ₹0.37 in 2017 to the most recent total annual payment of ₹2.50. This means that it has been growing its distributions at 31% per annum 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

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Varun Beverages has impressed us by growing EPS at 41% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Varun Beverages' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Varun Beverages' payments, as there could be some issues with sustaining them into the future. While Varun Beverages 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Varun Beverages (of which 1 is concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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