Stock Analysis

Zydus Lifesciences (NSE:ZYDUSLIFE) Has Announced That Its Dividend Will Be Reduced To ₹2.50

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Zydus Lifesciences Limited (NSE:ZYDUSLIFE) has announced it will be reducing its dividend payable on the 9th of September to ₹2.50. This means that the dividend yield is 0.7%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for Zydus Lifesciences

Zydus Lifesciences' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Zydus Lifesciences was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 7.8% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 11%, which we are pretty comfortable with and we think is feasible on an earnings basis.

NSEI:ZYDUSLIFE Historic Dividend July 10th 2022

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 ₹1.25 in 2012, and the most recent fiscal year payment was ₹2.50. This means that it has been growing its distributions at 7.2% per annum 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. Zydus Lifesciences might have put its house in order since then, but we remain cautious.

We Could See Zydus Lifesciences' Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see Zydus Lifesciences has been growing its earnings per share at 8.5% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Zydus Lifesciences' Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Zydus Lifesciences does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. 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.