Gillette India's (NSE:GILLETTE) Dividend Is Being Reduced To ₹45.00

Gillette India Limited's (NSE:GILLETTE) dividend is being reduced from last year's payment covering the same period to ₹45.00 on the 2nd of January. This means that the annual payment is 0.9% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Gillette India

Gillette India's Future Dividends May Potentially Be At Risk

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. The last payment made up 71% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

Earnings per share could rise by 12.6% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 98%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was ₹15.00, compared to the most recent full-year payment of ₹90.00. This implies that the company grew its distributions at a yearly rate of about 20% 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

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. It's encouraging to see that Gillette India has been growing its earnings per share at 13% a year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Gillette India Looks Like A Great Dividend Stock

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.

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. As an example, we've identified 1 warning sign for Gillette India that you should be aware of before investing. Is Gillette India not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.