Mangalore Chemicals & Fertilizers' (NSE:MANGCHEFER) Upcoming Dividend Will Be Larger Than Last Year's

Mangalore Chemicals & Fertilizers Limited (NSE:MANGCHEFER) will increase its dividend from last year's comparable payment on the 26th of October to ₹1.50. This makes the dividend yield 1.4%, which is above the industry average.

Check out our latest analysis for Mangalore Chemicals & Fertilizers

Mangalore Chemicals & Fertilizers' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Mangalore Chemicals & Fertilizers' 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.

If the trend of the last few years continues, EPS will grow by 21.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 9.2%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹1.20 in 2013, and the most recent fiscal year payment was ₹1.50. This means that it has been growing its distributions at 2.3% per annum 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

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. We are encouraged to see that Mangalore Chemicals & Fertilizers has grown earnings per share at 22% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Mangalore Chemicals & Fertilizers will make a great income stock. While Mangalore Chemicals & Fertilizers is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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 2 warning signs for Mangalore Chemicals & Fertilizers you should be aware of, and 1 of them can't be ignored. 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.