Neuland Laboratories' (NSE:NEULANDLAB) Upcoming Dividend Will Be Larger Than Last Year's

Neuland Laboratories Limited (NSE:NEULANDLAB) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of August to ₹14.00. This takes the annual payment to 0.2% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Neuland Laboratories

Neuland Laboratories' Payment Has Solid Earnings Coverage

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.

Looking forward, earnings per share is forecast to rise by 40.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 5.1%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was ₹1.20, compared to the most recent full-year payment of ₹14.00. This means that it has been growing its distributions at 28% per annum over that time. 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Neuland Laboratories has been growing its earnings per share at 78% a 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 Neuland 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. Earnings are easily covering distributions, and the company is generating plenty of cash. 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. However, there are other things to consider for investors when analysing stock performance. Now, if you want to look closer, it would be worth checking out our free research on Neuland Laboratories management tenure, salary, and performance. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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