Biocon's (NSE:BIOCON) Dividend Is Being Reduced To ₹0.50

Biocon Limited's (NSE:BIOCON) dividend is being reduced from last year's payment covering the same period to ₹0.50 on the 6th of September. This means that the dividend yield is 0.2%, which is a bit low when comparing to other companies in the industry.

View our latest analysis for Biocon

Biocon's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Biocon was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 113.1%. 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. The dividend has gone from an annual total of ₹0.833 in 2014 to the most recent total annual payment of ₹0.50. The dividend has shrunk at around 5.0% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Biocon May Find It Hard To Grow The Dividend

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. Earnings has been rising at 2.3% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Biocon has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, we think that Biocon could make a reasonable income stock, even though it did cut the dividend this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Biocon (1 is a bit concerning!) that you should be aware of before investing. Is Biocon 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.