PCBL Limited (NSE:PCBL) has announced that it will pay a dividend of ₹5.50 per share on the 2nd of March. This makes the dividend yield 4.6%, which will augment investor returns quite nicely.
View our latest analysis for PCBL
PCBL's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, PCBL's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. 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 is forecast to expand by 61.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, 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 ₹0.40 in 2013, and the most recent fiscal year payment was ₹5.50. This means that it has been growing its distributions at 30% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. PCBL has seen EPS rising for the last five years, at 11% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On PCBL's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
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. As an example, we've identified 2 warning signs for PCBL 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.
About NSEI:PCBL
PCBL Chemical
Together with subsidiaries, produces, sells, and exports carbon black in India and internationally.
Good value with reasonable growth potential.
