Privi Speciality Chemicals (NSE:PRIVISCL) Will Pay A Larger Dividend Than Last Year At ₹5.00

Privi Speciality Chemicals Limited (NSE:PRIVISCL) will increase its dividend from last year's comparable payment on the 31st of August to ₹5.00. Even though the dividend went up, the yield is still quite low at only 0.2%.

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Privi Speciality Chemicals' Payment Could Potentially Have Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Privi Speciality Chemicals' 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.

Looking forward, earnings per share could rise by 5.1% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 11% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Privi Speciality Chemicals

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ₹2.50 in 2015 to the most recent total annual payment of ₹5.00. This means that it has been growing its distributions at 7.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Privi Speciality Chemicals has been growing its earnings per share at 5.1% a year over the past five years. Privi Speciality Chemicals definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Privi Speciality Chemicals' Dividend

Overall, we always like to see the dividend being raised, but we don't think Privi Speciality Chemicals will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Privi Speciality Chemicals (of which 1 is significant!) you should know about. 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.