Dr. Reddy's Laboratories (NSE:DRREDDY) Is Increasing Its Dividend To ₹40.00

Dr. Reddy's Laboratories Limited (NSE:DRREDDY) will increase its dividend from last year's comparable payment on the 26th of August to ₹40.00. The payment will take the dividend yield to 0.9%, which is in line with the average for the industry.

View our latest analysis for Dr. Reddy's Laboratories

Dr. Reddy's Laboratories' Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Dr. Reddy's Laboratories' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 13.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 14%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dr. Reddy's Laboratories Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was ₹13.75, compared to the most recent full-year payment of ₹40.00. This means that it has been growing its distributions at 11% per annum 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 Dr. Reddy's Laboratories has grown earnings per share at 36% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like Dr. Reddy's Laboratories' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 39 analysts we track are forecasting for Dr. Reddy's Laboratories for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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