Bayer CropScience (NSE:BAYERCROP) Is Increasing Its Dividend To ₹30.00

Bayer CropScience Limited (NSE:BAYERCROP) will increase its dividend from last year's comparable payment on the 16th of September to ₹30.00. This makes the dividend yield 2.8%, which is above the industry average.

See our latest analysis for Bayer CropScience

Bayer CropScience's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. At the time of the last dividend payment, Bayer CropScience was paying out a very large proportion of what it was earning and 110% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Earnings per share is forecast to rise by 14.5% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 84% - on the higher side, but we wouldn't necessarily say this is unsustainable.

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 annual payment during the last 10 years was ₹4.20 in 2013, and the most recent fiscal year payment was ₹130.00. This implies that the company grew its distributions at a yearly rate of about 41% over that duration. Bayer CropScience 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.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Bayer CropScience has grown earnings per share at 14% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Bayer CropScience'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. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would probably look elsewhere for an income investment.

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. As an example, we've identified 1 warning sign for Bayer CropScience that you should be aware of before investing. Is Bayer CropScience 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.