Deepak Fertilisers And Petrochemicals (NSE:DEEPAKFERT) Will Pay A Larger Dividend Than Last Year At ₹9.00

The board of Deepak Fertilisers And Petrochemicals Corporation Limited (NSE:DEEPAKFERT) has announced that it will be paying its dividend of ₹9.00 on the 2nd of October, an increased payment from last year's comparable dividend. This makes the dividend yield 1.0%, which is above the industry average.

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. Investors will be pleased to see that Deepak Fertilisers And Petrochemicals' stock price has increased by 56% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Deepak Fertilisers And Petrochemicals

Deepak Fertilisers And Petrochemicals' Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Deepak Fertilisers And Petrochemicals' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 7.8% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 13%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 ₹5.50 in 2012, and the most recent fiscal year payment was ₹9.00. This implies that the company grew its distributions at a yearly rate of about 5.0% 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. Deepak Fertilisers And Petrochemicals might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

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. Deepak Fertilisers And Petrochemicals has seen EPS rising for the last five years, at 34% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We should note that Deepak Fertilisers And Petrochemicals has issued stock equal to 12% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Deepak Fertilisers And Petrochemicals Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Deepak Fertilisers And Petrochemicals is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Deepak Fertilisers And Petrochemicals (1 can't be ignored!) that you should be aware of before investing. 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.