Sanofi India Limited (NSE:SANOFI) has announced that it will pay a dividend of ₹117.00 per share on the 13th of June. The dividend yield of 2.0% is still a nice boost to shareholder returns, despite the cut.
View our latest analysis for Sanofi India
Sanofi India's Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Sanofi India's dividend was only 64% of earnings, however it was paying out 196% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Over the next year, EPS is forecast to expand by 30.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.
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. Since 2014, the dividend has gone from ₹39.00 total annually to ₹167.00. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
We Could See Sanofi India's Dividend Growing
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. Sanofi India has impressed us by growing EPS at 9.6% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
Our Thoughts On Sanofi India's Dividend
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Sanofi India is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
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. Just as an example, we've come across 2 warning signs for Sanofi India you should be aware of, and 1 of them is significant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
About NSEI:SANOFI
Sanofi India
Manufactures and trades in drugs and pharmaceutical products in India, Singapore and internationally.
Excellent balance sheet, good value and pays a dividend.
