Torrent Pharmaceuticals (NSE:TORNTPHARM) Is Increasing Its Dividend To ₹25.00

Torrent Pharmaceuticals Limited (NSE:TORNTPHARM) has announced that it will be increasing its dividend on the 24th of February to ₹25.00. This will take the annual payment from 1.1% to 1.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Torrent Pharmaceuticals

Torrent Pharmaceuticals' Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Torrent Pharmaceuticals was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 19.0%. If the dividend continues on this path, the payout ratio could be 55% by next year, which we think can be pretty sustainable going forward.

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 ₹3.00 in 2012 to the most recent annual payment of ₹30.00. This means that it has been growing its distributions at 26% per annum over that time. 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.

Torrent Pharmaceuticals May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Torrent Pharmaceuticals has only grown its earnings per share at 4.0% per annum over the past five years. Growth of 4.0% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Torrent Pharmaceuticals' Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Torrent Pharmaceuticals that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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