Manali Petrochemicals' (NSE:MANALIPETC) Dividend Is Being Reduced To ₹0.50

Manali Petrochemicals Limited (NSE:MANALIPETC) has announced that on 16th of October, it will be paying a dividend of₹0.50, which a reduction from last year's comparable dividend. Despite the cut, the dividend yield of 0.7% will still be comparable to other companies in the industry.

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Manali Petrochemicals' Future Dividend Projections Appear Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Manali Petrochemicals' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Unless the company can turn things around, EPS could fall by 3.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 31%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

View our latest analysis for Manali Petrochemicals

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. There hasn't been much of a change in the dividend over the last 10 years. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Achieve

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. Manali Petrochemicals has seen earnings per share falling at 3.2% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

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 a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Just as an example, we've come across 3 warning signs for Manali Petrochemicals you should be aware of, and 1 of them shouldn't be ignored. Is Manali Petrochemicals 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.