Neuland Laboratories' (NSE:NEULANDLAB) Dividend Will Be Increased To ₹14.00

Neuland Laboratories Limited (NSE:NEULANDLAB) will increase its dividend from last year's comparable payment on the 30th of August to ₹14.00. Although the dividend is now higher, the yield is only 0.2%, which is below the industry average.

Check out our latest analysis for Neuland Laboratories

Neuland Laboratories' Dividend Is Well Covered By Earnings

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, Neuland 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.

Over the next year, EPS is forecast to expand by 40.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 5.1% 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 annual payment during the last 10 years was ₹1.50 in 2014, and the most recent fiscal year payment was ₹14.00. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. Neuland Laboratories has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Neuland Laboratories has been growing its earnings per share at 78% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Neuland Laboratories Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Neuland Laboratories is a strong income stock thanks to its track record and growing earnings. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. See if management have their own wealth at stake, by checking insider shareholdings in Neuland Laboratories stock. 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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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.

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