Gillette India (NSE:GILLETTE) Is Reducing Its Dividend To ₹36.00

Gillette India Limited (NSE:GILLETTE) has announced it will be reducing its dividend payable on the 17th of December to ₹36.00. This means the annual payment is 2.0% of the current stock price, which is above the average for the industry.

See our latest analysis for Gillette India

Gillette India Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Gillette India was paying out 72% of earnings, but a comparatively small 66% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Earnings per share could rise by 9.3% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 147%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from ₹15.00 in 2011 to the most recent annual payment of ₹72.00. This means that it has been growing its distributions at 17% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Gillette India Could Grow Its Dividend

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. Gillette India has impressed us by growing EPS at 9.3% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

We Really Like Gillette India's Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Gillette India does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Gillette India that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list 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.
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