Abbott India (NSE:ABBOTINDIA) Will Pay A Larger Dividend Than Last Year At ₹475.00

The board of Abbott India Limited (NSE:ABBOTINDIA) has announced that it will be paying its dividend of ₹475.00 on the 12th of September, an increased payment from last year's comparable dividend. This will take the annual payment to 1.4% of the stock price, which is above what most companies in the industry pay.

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Abbott India's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Abbott India's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 105% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, earnings per share is forecast to rise by 38.6% over the next year. If the dividend continues on this path, the payout ratio could be 65% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Abbott India

Abbott India Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of ₹31.00 in 2015 to the most recent total annual payment of ₹475.00. This works out to be a compound annual growth rate (CAGR) of approximately 31% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

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 Abbott India has grown earnings per share at 19% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Abbott India will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Abbott India (1 makes us a bit uncomfortable!) that you should be aware of before investing. 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.