Colgate-Palmolive (India) (NSE:COLPAL) Will Pay A Larger Dividend Than Last Year At ₹19.00

The board of Colgate-Palmolive (India) Limited (NSE:COLPAL) has announced that it will be increasing its dividend on the 24th of November to ₹19.00. This will take the dividend yield from 2.5% to 2.5%, providing a nice boost to shareholder returns.

See our latest analysis for Colgate-Palmolive (India)

Colgate-Palmolive (India) Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Over the next year, EPS could expand by 11.8% if the company continues along the path it has been on recently. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 109% over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was ₹10.00, compared to the most recent full-year payment of ₹39.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% 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.

Colgate-Palmolive (India)'s Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Colgate-Palmolive (India) has grown earnings per share at 12% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

Colgate-Palmolive (India)'s Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Colgate-Palmolive (India) that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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.

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