Gujarat Narmada Valley Fertilizers & Chemicals (NSE:GNFC) Is Increasing Its Dividend To ₹30.00

The board of Gujarat Narmada Valley Fertilizers & Chemicals Limited (NSE:GNFC) has announced that it will be paying its dividend of ₹30.00 on the 26th of October, an increased payment from last year's comparable dividend. This takes the dividend yield to 4.7%, which shareholders will be pleased with.

Check out our latest analysis for Gujarat Narmada Valley Fertilizers & Chemicals

Gujarat Narmada Valley Fertilizers & Chemicals' Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Gujarat Narmada Valley Fertilizers & Chemicals' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 4.4% over the next 12 months. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹3.50 in 2013, and the most recent fiscal year payment was ₹30.00. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 4.4% per year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Gujarat Narmada Valley Fertilizers & Chemicals' Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Gujarat Narmada Valley Fertilizers & Chemicals that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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