Grasim Industries (NSE:GRASIM) Will Pay A Dividend Of ₹10.00

Grasim Industries Limited (NSE:GRASIM) has announced that it will pay a dividend of ₹10.00 per share on the 25th of September. This means that the annual payment will be 0.4% of the current stock price, which is in line with the average for the industry.

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Grasim Industries' Projected Earnings Seem Likely To Cover Future Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Grasim Industries was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to fall by 36.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 31%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Check out our latest analysis for Grasim Industries

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ₹4.20 in 2015 to the most recent total annual payment of ₹10.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.1% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Grasim Industries May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Grasim Industries' earnings per share has shrunk at approximately 3.8% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Grasim Industries' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Grasim Industries' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Grasim Industries has 4 warning signs (and 2 which make us uncomfortable) we think 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.