Gillette India's (NSE:GILLETTE) Dividend Will Be 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 1.1% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Gillette India

Gillette India's Future Dividends May Potentially Be At Risk

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Gillette India's dividend made up quite a large proportion of earnings but only 66% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to grow by 10.2% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 110%, which is a bit high and could start applying pressure to 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. The dividend has gone from an annual total of ₹15.00 in 2014 to the most recent total annual payment of ₹90.00. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Gillette India 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Gillette India has impressed us by growing EPS at 10% 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.

Gillette India Looks Like A Great Dividend Stock

Overall, we think that Gillette India could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. Taking the debate a bit further, we've identified 1 warning sign for Gillette India that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.