Vinati Organics (NSE:VINATIORGA) Has Announced A Dividend Of ₹7.00

The board of Vinati Organics Limited (NSE:VINATIORGA) has announced that it will pay a dividend of ₹7.00 per share on the 10th of October. This means the annual payment will be 0.3% of the current stock price, which is lower than the industry average.

See our latest analysis for Vinati Organics

Vinati Organics' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Vinati Organics was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 23.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, 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. Since 2014, the annual payment back then was ₹1.50, compared to the most recent full-year payment of ₹7.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. 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.

Vinati Organics May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 2.2% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, Vinati Organics could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Vinati Organics' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Vinati Organics' payments, as there could be some issues with sustaining them into the future. While Vinati Organics is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Vinati Organics that investors should know about before committing capital to this stock. Is Vinati Organics not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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