Dr. Lal PathLabs (NSE:LALPATHLAB) Is Increasing Its Dividend To ₹7.00

Dr. Lal PathLabs Limited's (NSE:LALPATHLAB) periodic dividend will be increasing on the 30th of November to ₹7.00, with investors receiving 17% more than last year's ₹6.00. This makes the dividend yield 0.8%, which is above the industry average.

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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. However, prior to this announcement, Dr. Lal PathLabs' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 29.3%. If the dividend continues on this path, the payout ratio could be 37% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Dr. Lal PathLabs

Dr. Lal PathLabs' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the annual payment back then was ₹2.45, compared to the most recent full-year payment of ₹24.00. This means that it has been growing its distributions at 29% per annum over that time. Dr. Lal PathLabs has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Dr. Lal PathLabs has impressed us by growing EPS at 21% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Dr. Lal PathLabs Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Dr. Lal PathLabs is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Dr. Lal PathLabs that investors should take into consideration. 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.