Dr. Reddy's Laboratories (NSE:DRREDDY) Has Re-Affirmed Its Dividend Of ₹25.00

By
Simply Wall St
Published
May 22, 2021
NSEI:DRREDDY
Source: Shutterstock

Dr. Reddy's Laboratories Limited (NSE:DRREDDY) has announced that it will pay a dividend of ₹25.00 per share on the 27th of August. This payment means the dividend yield will be 0.5%, which is below the average for the industry.

Check out our latest analysis for Dr. Reddy's Laboratories

Dr. Reddy's Laboratories' Earnings Easily Cover the Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, Dr. Reddy's Laboratories' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 71.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 13%, which is in the range that makes us comfortable with the sustainability of the dividend.

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NSEI:DRREDDY Historic Dividend May 23rd 2021

Dr. Reddy's Laboratories Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from ₹11.25 in 2011 to the most recent annual payment of ₹25.00. This means that it has been growing its distributions at 8.3% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Dr. Reddy's Laboratories hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On Dr. Reddy's Laboratories' Dividend

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Given that earnings are not growing, the dividend does not look nearly so attractive. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 32 analysts we track are forecasting for the future. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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