Godawari Power & Ispat's (NSE:GPIL) Dividend Will Be Reduced To ₹4.00

Godawari Power & Ispat Limited (NSE:GPIL) is reducing its dividend from last year's comparable payment to ₹4.00 on the 16th of October. Based on this payment, the dividend yield will be 0.7%, which is lower than the average for the industry.

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 Godawari Power & Ispat's stock price has increased by 53% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Godawari Power & Ispat

Godawari Power & Ispat's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Godawari Power & Ispat was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 13.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 8.2%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 annual payment back then was ₹0.625, compared to the most recent full-year payment of ₹4.00. This means that it has been growing its distributions at 20% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Godawari Power & Ispat has impressed us by growing EPS at 23% per year over the past five years. 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 Godawari Power & Ispat's Dividend

Overall, we think that Godawari Power & Ispat could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Godawari Power & Ispat that you should be aware of before investing. Is Godawari Power & Ispat 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.