Aarti Drugs (NSE:AARTIDRUGS) Is Due To Pay A Dividend Of ₹1.00

Aarti Drugs Limited (NSE:AARTIDRUGS) will pay a dividend of ₹1.00 on the 26th of February. Including this payment, the dividend yield on the stock will be 0.2%, which is a modest boost for shareholders' returns.

View our latest analysis for Aarti Drugs

Aarti Drugs' Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Aarti Drugs' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 127.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 2.7% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from ₹0.563 total annually to ₹1.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.9% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Aarti Drugs has grown earnings per share at 17% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Aarti Drugs' prospects of growing its dividend payments in the future.

Our Thoughts On Aarti Drugs' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Aarti Drugs' payments, as there could be some issues with sustaining them into the future. While Aarti Drugs is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Aarti Drugs that investors should take into consideration. 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.