Gujarat Alkalies and Chemicals (NSE:GUJALKALI) Is Increasing Its Dividend To ₹23.55

Gujarat Alkalies and Chemicals Limited (NSE:GUJALKALI) will increase its dividend from last year's comparable payment on the 26th of October to ₹23.55. This will take the annual payment to 3.6% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Gujarat Alkalies and Chemicals

Gujarat Alkalies and Chemicals Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Gujarat Alkalies and Chemicals was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

If the company can't turn things around, EPS could fall by 21.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 159%, which could put the dividend in jeopardy if the company's earnings don't improve.

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 annual payment during the last 10 years was ₹3.00 in 2013, and the most recent fiscal year payment was ₹23.55. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Gujarat Alkalies and Chemicals' earnings per share has shrunk at 21% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Gujarat Alkalies and Chemicals (1 makes us a bit uncomfortable!) that you should be aware of before investing. 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.