The board of Grasim Industries Limited (NSE:GRASIM) has announced that it will pay a dividend on the 19th of September, with investors receiving ₹10.00 per share. This means the dividend yield will be fairly typical at 0.4%.
Check out our latest analysis for Grasim Industries
Grasim Industries Doesn't Earn Enough To Cover Its Payments
Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Grasim Industries' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
EPS is set to fall by 93.3% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 195%, which is definitely a bit high to be 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 ₹4.20 in 2014, and the most recent fiscal year payment was ₹10.00. This means that it has been growing its distributions at 9.1% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Grasim Industries might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Grasim Industries has impressed us by growing EPS at 26% per year over the past five years. 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.
Our Thoughts On Grasim Industries' Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Grasim Industries (of which 2 can't be ignored!) you should know about. Is Grasim Industries 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.
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About NSEI:GRASIM
Grasim Industries
Primarily operates in fibre, yarn, pulp, chemicals, textile, fertilizers, and insulators businesses in India and internationally.
Slight second-rate dividend payer.
