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

Bayer CropScience Limited (NSE:BAYERCROP) has announced that it will be increasing its dividend from last year's comparable payment on the 16th of September to ₹30.00. This makes the dividend yield 3.0%, which is above the industry average.

Check out our latest analysis for Bayer CropScience

Bayer CropScience's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments 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. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

EPS is set to grow by 9.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 87%, which is on the higher side, but certainly still feasible.

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 2013, the annual payment back then was ₹4.20, compared to the most recent full-year payment of ₹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

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. It's encouraging to see that Bayer CropScience has been growing its earnings per share at 14% a 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Bayer CropScience's payments are rock solid. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Bayer CropScience that investors should know about before committing capital to this stock. 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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