Punjab Chemicals and Crop Protection (NSE:PUNJABCHEM) Is Increasing Its Dividend To ₹3.00

The board of Punjab Chemicals and Crop Protection Limited (NSE:PUNJABCHEM) has announced that it will be paying its dividend of ₹3.00 on the 9th of September, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 0.2% is only a modest boost to shareholder returns.

Check out our latest analysis for Punjab Chemicals and Crop Protection

Punjab Chemicals and Crop Protection's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Punjab Chemicals and Crop Protection was paying a whopping 218% as a dividend, but this only made up 4.4% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS could expand by 52.4% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 2.9%, which is in the range that makes us comfortable with the sustainability of the dividend.

Punjab Chemicals and Crop Protection Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. Since 2019, the dividend has gone from ₹1.50 total annually to ₹3.00. This means that it has been growing its distributions at 26% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Punjab Chemicals and Crop Protection has grown earnings per share at 52% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Punjab Chemicals and Crop Protection's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Punjab Chemicals and Crop Protection's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Punjab Chemicals and Crop Protection is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Punjab Chemicals and Crop Protection that investors need to be conscious of moving forward. Is Punjab Chemicals and Crop Protection not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.