Gujarat Alkalies and Chemicals' (NSE:GUJALKALI) Shareholders Will Receive A Bigger Dividend Than Last Year

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 1.1%, providing a nice boost to shareholder returns.

See our latest analysis for Gujarat Alkalies and Chemicals

Gujarat Alkalies and Chemicals' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Gujarat Alkalies and Chemicals was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 17.5% over the next 12 months. 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

Even over a long history of paying dividends, the company's distributions have been remarkably stable. 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. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Gujarat Alkalies and Chemicals has seen EPS rising for the last five years, at 17% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

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 makes us a bit uncomfortable) 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.