Gujarat Alkalies and Chemicals' (NSE:GUJALKALI) Dividend Will Be ₹8.00

Gujarat Alkalies and Chemicals Limited (NSE:GUJALKALI) will pay a dividend of ₹8.00 on the 23rd of October. Based on this payment, the dividend yield on the company's stock will be 1.7%, which is an attractive boost to shareholder returns.

See our latest analysis for Gujarat Alkalies and Chemicals

Gujarat Alkalies and Chemicals' Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Gujarat Alkalies and Chemicals' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, EPS could fall by 5.7% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 35%, which is definitely feasible to continue.

Gujarat Alkalies and Chemicals Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was ₹3.00 in 2011, and the most recent fiscal year payment was ₹8.00. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. In the last five years, Gujarat Alkalies and Chemicals' earnings per share has shrunk at approximately 5.7% 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.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Gujarat Alkalies and Chemicals is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Gujarat Alkalies and Chemicals that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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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