Today we’ll take a closer look at Gulf Oil Lubricants India Limited (NSE:GULFOILLUB) from a dividend investor’s perspective. Owning a strong dividend company and reinvesting the dividends is widely seen as an attractive way of growing your wealth. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company’s dividend doesn’t live up to expectations.
Investors might not know much about Gulf Oil Lubricants India’s dividend prospects, even though it has been paying dividends for the last five years and offers a 1.3% yield. A 1.3% yield is not inspiring, but the longer payment history has some appeal. Some simple analysis can offer a lot of insight when buying a company for its dividend, and we’ll go through these below.Explore this interactive chart for our latest analysis on Gulf Oil Lubricants India!
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to be form a view on if a company’s dividend is sustainable, relative to its net profit after tax. Gulf Oil Lubricants India paid out 32% of its profit as dividends, over the trailing twelve month period. This is medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Gulf Oil Lubricants India paid out 2410% of its free cash flow last year, which we think is a risk if cash flows do not improve. Paying out more than 100% of your free cash flow in dividends is generally not a long-term, sustainable state of affairs, so we think shareholders should watch this metric closely.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Looking at the data, we can see that Gulf Oil Lubricants India has been paying a dividend for the past five years. During the past five-year period, the first annual payment was ₹4.00 in 2014, compared to ₹11.00 last year. Dividends per share have grown at approximately 22% per year over this time.
The dividend has been growing pretty quickly, which could be enough to get us interested even though the dividend history is relatively short. Further research may be warranted.
Dividend Growth Potential
Examining whether the dividend is affordable and stable is important. However, it’s also important to assess if earnings per share (EPS) are growing. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. It’s good to see Gulf Oil Lubricants India has been growing its earnings per share at 27% a year over the past 5 years. With high earnings per share growth in recent times and a modest payout ratio, we think this is an attractive combination if earnings can be reinvested to generate further growth.
To summarise, shareholders should always check that Gulf Oil Lubricants India’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Gulf Oil Lubricants India has a low payout ratio, which we like, although it paid out virtually all of its generated cash. Next, earnings growth has been good, but unfortunately the company has not been paying dividends as long as we’d like. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than Gulf Oil Lubricants India out there.
Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 Gulf Oil Lubricants India analysts we track are forecasting continued growth with our free report on analyst estimates for the company.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.