Dr. Lal PathLabs (NSE:LALPATHLAB) Will Pay A Dividend Of ₹6.00

Dr. Lal PathLabs Limited's (NSE:LALPATHLAB) investors are due to receive a payment of ₹6.00 per share on 27th of August. This means the annual payment is 0.5% of the current stock price, which is above the average for the industry.

See our latest analysis for Dr. Lal PathLabs

Dr. Lal PathLabs' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Dr. Lal PathLabs is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 60.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dr. Lal PathLabs' Dividend Has Lacked Consistency

Looking back, Dr. Lal PathLabs' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the annual payment back then was ₹2.45, compared to the most recent full-year payment of ₹12.00. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Dr. Lal PathLabs has been growing its earnings per share at 11% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Dr. Lal PathLabs' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Dr. Lal PathLabs' payments, as there could be some issues with sustaining them into the future. While Dr. Lal PathLabs 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. For example, we've picked out 3 warning signs for Dr. Lal PathLabs that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.