Sun Pharmaceutical Industries (NSE:SUNPHARMA) Will Pay A Dividend Of ₹5.50

The board of Sun Pharmaceutical Industries Limited (NSE:SUNPHARMA) has announced that it will pay a dividend of ₹5.50 per share on the 8th of August. The payment will take the dividend yield to 1.0%, which is in line with the average for the industry.

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Sun Pharmaceutical Industries' Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, prior to this announcement, Sun Pharmaceutical Industries' 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 49.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Sun Pharmaceutical Industries

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ₹1.50 in 2015 to the most recent total annual payment of ₹16.00. This works out to be a compound annual growth rate (CAGR) of approximately 27% 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

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. Sun Pharmaceutical Industries has seen EPS rising for the last five years, at 24% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Sun Pharmaceutical Industries Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Sun Pharmaceutical Industries is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Sun Pharmaceutical Industries that investors should know about before committing capital to this stock. Is Sun Pharmaceutical Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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