Sumitomo Chemical India (NSE:SUMICHEM) Has Announced That It Will Be Increasing Its Dividend To ₹1.20

The board of Sumitomo Chemical India Limited (NSE:SUMICHEM) has announced that it will be paying its dividend of ₹1.20 on the 3rd of September, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 0.2%, which is below the industry average.

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Sumitomo Chemical India's Projected Earnings Seem Likely To Cover Future Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, Sumitomo Chemical India's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 63.9% over the next year. If the dividend continues on this path, the payout ratio could be 8.3% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Sumitomo Chemical India

Sumitomo Chemical India's Dividend Has Lacked Consistency

It's comforting to see that Sumitomo Chemical India has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 5 years was ₹0.55 in 2020, and the most recent fiscal year payment was ₹1.20. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Sumitomo Chemical India has impressed us by growing EPS at 20% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Sumitomo Chemical India Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Sumitomo Chemical India is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 Sumitomo Chemical India analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Sumitomo Chemical India 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.