Stock Analysis

Zydus Lifesciences' (NSE:ZYDUSLIFE) Dividend Will Be Increased To ₹6.00

NSEI:ZYDUSLIFE
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The board of Zydus Lifesciences Limited (NSE:ZYDUSLIFE) has announced that the dividend on 10th of September will be increased to ₹6.00, which will be 140% higher than last year's payment of ₹2.50 which covered the same period. This takes the annual payment to 0.5% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Zydus Lifesciences

Zydus Lifesciences' Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, Zydus Lifesciences' earnings easily cover the dividend. 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 56.7%. If the dividend continues on this path, the payout ratio could be 18% by next year, which we think can be pretty sustainable going forward.

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NSEI:ZYDUSLIFE Historic Dividend May 21st 2023

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ₹1.50 in 2013 to the most recent total annual payment of ₹2.50. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Zydus Lifesciences might have put its house in order since then, but we remain cautious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Zydus Lifesciences has only grown its earnings per share at 2.1% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. Taking the debate a bit further, we've identified 1 warning sign for Zydus Lifesciences that investors need to be conscious of moving forward. Is Zydus Lifesciences not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.