Gujarat Alkalies and Chemicals (NSE:GUJALKALI) Is Increasing Its Dividend To ₹15.80

The board of Gujarat Alkalies and Chemicals Limited (NSE:GUJALKALI) has announced that it will be paying its dividend of ₹15.80 on the 26th of October, an increased payment from last year's comparable dividend. This makes the dividend yield 2.8%, which is above the industry average.

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Gujarat Alkalies and Chemicals' Distributions May Be Difficult To Sustain

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Gujarat Alkalies and Chemicals is unprofitable despite paying a dividend, and it is paying out 208% of its free cash flow. This makes us feel that the dividend will be hard to maintain.

Recent, EPS has fallen by 36.5%, so this could continue over the next year. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

Check out our latest analysis for Gujarat Alkalies and Chemicals

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from ₹4.50 total annually to ₹15.80. This means that it has been growing its distributions at 13% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Gujarat Alkalies and Chemicals' EPS has fallen by approximately 37% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

We're Not Big Fans Of Gujarat Alkalies and Chemicals' Dividend

In conclusion, we have some concerns about this dividend, even though it being raised is good. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.

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. Taking the debate a bit further, we've identified 2 warning signs for Gujarat Alkalies and Chemicals that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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