Gujarat Alkalies and Chemicals (NSE:GUJALKALI) Has Announced That It Will Be Increasing Its Dividend To ₹10.00

Gujarat Alkalies and Chemicals Limited (NSE:GUJALKALI) will increase its dividend from last year's comparable payment on the 29th of October to ₹10.00. This will take the dividend yield to an attractive 1.3%, providing a nice boost to shareholder returns.

Check out our latest analysis for Gujarat Alkalies and Chemicals

Gujarat Alkalies and Chemicals' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Gujarat Alkalies and Chemicals was earning enough to cover the dividend, but free cash flows weren't positive. 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.

Over the next year, EPS could expand by 17.5% if recent trends continue. If the dividend continues on this path, the payout ratio could be 10% by next year, which we think can be pretty sustainable going forward.

Gujarat Alkalies and Chemicals Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of ₹3.00 in 2012 to the most recent total annual payment of ₹10.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Gujarat Alkalies and Chemicals has grown earnings per share at 17% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Gujarat Alkalies and Chemicals will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Gujarat Alkalies and Chemicals has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Gujarat Alkalies and Chemicals 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.