Gulf Oil Lubricants India (NSE:GULFOILLUB) Is Reducing Its Dividend To ₹5.00

Gulf Oil Lubricants India Limited (NSE:GULFOILLUB) is reducing its dividend from last year's comparable payment to ₹5.00 on the 16th of October. This means the annual payment is 1.2% of the current stock price, which is above the average for the industry.

View our latest analysis for Gulf Oil Lubricants India

Gulf Oil Lubricants India's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Gulf Oil Lubricants India was earning enough to cover the dividend, but free cash flows weren't positive. 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 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

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2014, the annual payment back then was ₹4.00, compared to the most recent full-year payment of ₹5.00. This works out to be a compound annual growth rate (CAGR) of approximately 2.8% a year over that time. 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. Gulf Oil Lubricants India has impressed us by growing EPS at 14% per year over the past five years. Gulf Oil Lubricants India definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Gulf Oil Lubricants India is a great stock to add to your portfolio if income is your focus.

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 instance, we've picked out 1 warning sign for Gulf Oil Lubricants India that investors should take into consideration. Is Gulf Oil Lubricants India 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.