Mangalore Chemicals & Fertilizers (NSE:MANGCHEFER) Has Announced That It Will Be Increasing Its Dividend To ₹1.50

Mangalore Chemicals & Fertilizers Limited (NSE:MANGCHEFER) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of October to ₹1.50. This will take the dividend yield to an attractive 1.4%, providing a nice boost to shareholder returns.

View our latest analysis for Mangalore Chemicals & Fertilizers

Mangalore Chemicals & Fertilizers' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Mangalore Chemicals & Fertilizers is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 21.9% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 9.2% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was ₹1.20, compared to the most recent full-year payment of ₹1.50. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Mangalore Chemicals & Fertilizers has seen EPS rising for the last five years, at 22% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Mangalore Chemicals & Fertilizers' Dividend

Overall, we always like to see the dividend being raised, but we don't think Mangalore Chemicals & Fertilizers will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 identified 2 warning signs for Mangalore Chemicals & Fertilizers (1 is a bit unpleasant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.