Gulf Oil Lubricants India (NSE:GULFOILLUB) Has Announced That Its Dividend Will Be Reduced To ₹5.00

Gulf Oil Lubricants India Limited's (NSE:GULFOILLUB) dividend is being reduced from last year's payment covering the same period to ₹5.00 on the 16th of October. The dividend yield of 1.1% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Gulf Oil Lubricants India

Gulf Oil Lubricants India's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Gulf Oil Lubricants India 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.

Over the next year, EPS could expand by 13.8% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 9.5%, which is in the range that makes us comfortable with the sustainability of the dividend.

Gulf Oil Lubricants India's Dividend Has Lacked Consistency

Gulf Oil Lubricants India has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2014, the dividend has gone from ₹4.00 total annually to ₹5.00. This implies that the company grew its distributions at a yearly rate of about 2.8% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Gulf Oil Lubricants India has grown earnings per share at 14% per year over the past five years. 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, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Gulf Oil Lubricants India that investors should know about before committing capital to this stock. 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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