Sumitomo Chemical India's (NSE:SUMICHEM) Dividend Will Be Increased To ₹1.00

The board of Sumitomo Chemical India Limited (NSE:SUMICHEM) has announced that it will be paying its dividend of ₹1.00 on the 28th of August, 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.

View our latest analysis for Sumitomo Chemical India

Sumitomo Chemical India's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Sumitomo Chemical India was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 67.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 7.0%, which is in the range that makes us comfortable with the sustainability of the dividend.

Sumitomo Chemical India Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The dividend has gone from an annual total of ₹0.55 in 2020 to the most recent total annual payment of ₹1.00. This works out to be a compound annual growth rate (CAGR) of approximately 35% a year 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. It's encouraging to see that Sumitomo Chemical India has been growing its earnings per share at 24% a 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.

We Really Like Sumitomo Chemical India's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. For example, we've picked out 1 warning sign for Sumitomo Chemical India that investors should know about before committing capital to this stock. 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.