Deepak Fertilisers And Petrochemicals' (NSE:DEEPAKFERT) Dividend Will Be Increased To ₹10.00

Deepak Fertilisers And Petrochemicals Corporation Limited's (NSE:DEEPAKFERT) dividend will be increasing from last year's payment of the same period to ₹10.00 on 1st of October. This takes the dividend yield to 1.7%, which shareholders will be pleased with.

Check out our latest analysis for Deepak Fertilisers And Petrochemicals

Deepak Fertilisers And Petrochemicals' Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Deepak Fertilisers And Petrochemicals' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to fall by 36.3%. If the dividend continues along recent trends, we estimate the payout ratio could be 17%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from ₹5.50 total annually to ₹10.00. This implies that the company grew its distributions at a yearly rate of about 6.2% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

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. We are encouraged to see that Deepak Fertilisers And Petrochemicals has grown earnings per share at 39% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Deepak Fertilisers And Petrochemicals will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Deepak Fertilisers And Petrochemicals has 5 warning signs (and 3 which are significant) we think you should know about. Is Deepak Fertilisers And Petrochemicals 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.