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

Gulf Oil Lubricants India Limited (NSE:GULFOILLUB) has announced that on 16th of October, it will be paying a dividend of₹5.00, which a reduction from last year's comparable dividend. The dividend yield of 1.0% is still a nice boost to shareholder returns, despite the cut.

Check out 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. Gulf Oil Lubricants India is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 13.8% if recent trends continue. If the dividend continues on this path, the payout ratio could be 9.5% by next year, which we think can be pretty sustainable going forward.

Gulf Oil Lubricants India's Dividend Has Lacked Consistency

It's comforting to see that Gulf Oil Lubricants India has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of ₹4.00 in 2014 to the most recent total annual payment of ₹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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Gulf Oil Lubricants India has been growing its earnings per share at 14% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Gulf Oil Lubricants India's prospects of growing its dividend payments in the future.

Our Thoughts On Gulf Oil Lubricants India's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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