Ipca Laboratories (NSE:IPCALAB) Is Paying Out A Dividend Of ₹2.00

The board of Ipca Laboratories Limited (NSE:IPCALAB) has announced that it will pay a dividend of ₹2.00 per share on the 10th of December. This payment means the dividend yield will be 0.3%, which is below the average for the industry.

See our latest analysis for Ipca Laboratories

Ipca Laboratories' Payment Could Potentially Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Ipca Laboratories' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 141.9%. If the dividend continues on this path, the payout ratio could be 8.0% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was ₹2.50, compared to the most recent full-year payment of ₹4.00. This means that it has been growing its distributions at 4.8% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 2.6% a year for the past five years, which isn't massive but still better than seeing them shrink. If Ipca Laboratories is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

Overall, a consistent dividend is a good thing, and we think that Ipca Laboratories has the ability to continue this into the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Ipca Laboratories that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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