Strides Pharma Science (NSE:STAR) Has Announced That It Will Be Increasing Its Dividend To ₹2.50

Strides Pharma Science Limited's (NSE:STAR) dividend will be increasing to ₹2.50 on 3rd of October. Although the dividend is now higher, the yield is only 0.3%, which is below the industry average.

See our latest analysis for Strides Pharma Science

Strides Pharma Science's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Strides Pharma Science 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.

The next year is set to see EPS grow by 39.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 5.6%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was ₹1.50 in 2011, and the most recent fiscal year payment was ₹2.50. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Strides Pharma Science might have put its house in order since then, but we remain 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. Strides Pharma Science has seen EPS rising for the last five years, at 12% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Strides Pharma Science Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Strides Pharma Science has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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