Manali Petrochemicals (NSE:MANALIPETC) Is Paying Out Less In Dividends Than Last Year

Manali Petrochemicals Limited (NSE:MANALIPETC) has announced that on 25th of October, it will be paying a dividend of₹0.75, which a reduction from last year's comparable dividend. The yield is still above the industry average at 1.2%.

Check out our latest analysis for Manali Petrochemicals

Manali Petrochemicals Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Manali Petrochemicals was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

If the company can't turn things around, EPS could fall by 20.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 100%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ₹0.50 in 2013 to the most recent total annual payment of ₹0.75. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

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. Over the past five years, it looks as though Manali Petrochemicals' EPS has declined at around 20% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Our Thoughts On Manali Petrochemicals' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Manali Petrochemicals 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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