Gujarat State Fertilizers & Chemicals' (NSE:GSFC) Shareholders Will Receive A Bigger Dividend Than Last Year

Gujarat State Fertilizers & Chemicals Limited (NSE:GSFC) will increase its dividend on the 27th of October to ₹2.20. This will take the annual payment from 2.0% to 2.0% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Gujarat State Fertilizers & Chemicals

Gujarat State Fertilizers & Chemicals' Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. 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.

The next year is set to see EPS grow by 4.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 18% 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. The dividend has gone from ₹1.40 in 2011 to the most recent annual payment of ₹2.20. This implies that the company grew its distributions at a yearly rate of about 4.6% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Gujarat State Fertilizers & Chemicals hasn't seen much change in its earnings per share over the last five years. While EPS growth is quite low, Gujarat State Fertilizers & Chemicals has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Gujarat State Fertilizers & Chemicals' Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Gujarat State Fertilizers & Chemicals you should be aware of, and 1 of them is significant. We have also put together a list of global stocks with a solid dividend.

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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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