Neuland Laboratories (NSE:NEULANDLAB) Is Increasing Its Dividend To ₹10.00

Neuland Laboratories Limited's (NSE:NEULANDLAB) dividend will be increasing from last year's payment of the same period to ₹10.00 on 26th of August. Despite this raise, the dividend yield of 0.3% is only a modest boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Neuland Laboratories' stock price has increased by 78% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Neuland Laboratories

Neuland Laboratories' Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Neuland Laboratories was easily earning enough to cover the dividend. 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 fall by 9.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 10.0%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ₹1.20 in 2013 to the most recent total annual payment of ₹10.00. This means that it has been growing its distributions at 24% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

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. Neuland Laboratories has seen EPS rising for the last five years, at 64% per annum. 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.

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 distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Neuland Laboratories that investors need to be conscious of moving forward. 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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