Gujarat Narmada Valley Fertilizers & Chemicals' (NSE:GNFC) Upcoming Dividend Will Be Larger Than Last Year's

Gujarat Narmada Valley Fertilizers & Chemicals Limited's (NSE:GNFC) dividend will be increasing to ₹8.00 on 23rd of October. This makes the dividend yield 2.2%, which is above the industry average.

See our latest analysis for Gujarat Narmada Valley Fertilizers & Chemicals

Gujarat Narmada Valley Fertilizers & Chemicals' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Gujarat Narmada Valley Fertilizers & Chemicals' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS could expand by 31.1% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 15% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was ₹3.25, compared to the most recent full-year payment of ₹8.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.4% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

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. Gujarat Narmada Valley Fertilizers & Chemicals has seen EPS rising for the last five years, at 31% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Gujarat Narmada Valley Fertilizers & Chemicals' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign 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 curated list of strong dividend payers.

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