Dr. Lal PathLabs (NSE:LALPATHLAB) Has Affirmed Its Dividend Of ₹6.00

The board of Dr. Lal PathLabs Limited (NSE:LALPATHLAB) has announced that it will pay a dividend on the 28th of July, with investors receiving ₹6.00 per share. Based on this payment, the dividend yield on the company's stock will be 0.8%, which is an attractive boost to shareholder returns.

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Dr. Lal PathLabs' Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Dr. Lal PathLabs' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 36.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 36%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Dr. Lal PathLabs

Dr. Lal PathLabs' Dividend Has Lacked Consistency

It's comforting to see that Dr. Lal PathLabs has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the dividend has gone from ₹2.45 total annually to ₹24.00. This implies that the company grew its distributions at a yearly rate of about 29% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Dr. Lal PathLabs has seen EPS rising for the last five years, at 16% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

We Really Like Dr. Lal PathLabs' Dividend

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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 Dr. Lal PathLabs that investors should take into consideration. 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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