Neuland Laboratories' (NSE:NEULANDLAB) Shareholders Will Receive A Smaller Dividend Than Last Year

Neuland Laboratories Limited's (NSE:NEULANDLAB) dividend is being reduced by 14% to ₹12.00 per share on 29th of August, in comparison to last year's comparable payment of ₹14.00. Based on this payment, the dividend yield will be 0.1%, which is lower than the average for the industry.

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Neuland Laboratories' Future Dividend Projections Appear 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. 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.

The next year is set to see EPS grow by 127.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 2.2% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Neuland Laboratories

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹1.50 in 2015, and the most recent fiscal year payment was ₹14.00. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Neuland Laboratories has grown earnings per share at 74% per 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.

We Really Like Neuland Laboratories' Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Neuland Laboratories does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Neuland Laboratories that investors should know about before committing capital to this 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.