Gujarat State Fertilizers & Chemicals (NSE:GSFC) Is Paying Out A Larger Dividend Than Last Year

By
Simply Wall St
Published
September 02, 2021
NSEI:GSFC
Source: Shutterstock

Gujarat State Fertilizers & Chemicals Limited (NSE:GSFC) will increase its dividend on the 27th of October to ₹2.20. This takes the dividend yield to 2.1%, which shareholders will be pleased with.

See our latest analysis for Gujarat State Fertilizers & Chemicals

Gujarat State 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 State 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.

EPS is set to fall by 3.3% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 16%, which is comfortable for the company to continue in the future.

historic-dividend
NSEI:GSFC Historic Dividend September 3rd 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the dividend has gone from ₹1.40 to ₹2.20. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Gujarat State Fertilizers & Chemicals Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Gujarat State Fertilizers & Chemicals has been growing its earnings per share at 6.0% a year over the past five years. Gujarat State Fertilizers & Chemicals definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Gujarat State 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Gujarat State Fertilizers & Chemicals that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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