AGI Greenpac (NSE:AGI) Has Announced That It Will Be Increasing Its Dividend To ₹5.00

The board of AGI Greenpac Limited (NSE:AGI) has announced that it will be increasing its dividend on the 29th of September to ₹5.00. This takes the dividend yield from 2.6% to 2.6%, which shareholders will be pleased with.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. AGI Greenpac's stock price has reduced by 37% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

Check out our latest analysis for AGI Greenpac

AGI Greenpac's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. AGI Greenpac is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 5.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was ₹2.50, compared to the most recent full-year payment of ₹5.00. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. AGI Greenpac might have put its house in order since then, but we remain cautious.

The Dividend Has Growth Potential

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 AGI Greenpac has been growing its earnings per share at 5.3% 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 AGI Greenpac's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While AGI Greenpac 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for AGI Greenpac you should be aware of, and 1 of them can't be ignored. Is AGI Greenpac 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.