Stock Analysis

Zydus Lifesciences' (NSE:ZYDUSLIFE) Shareholders Will Receive A Smaller Dividend Than Last Year

NSEI:ZYDUSLIFE
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Zydus Lifesciences Limited (NSE:ZYDUSLIFE) has announced that on 16th of August, it will be paying a dividend of₹2.50, which a reduction from last year's comparable dividend. This payment takes the dividend yield to 0.7%, which only provides a modest boost to overall returns.

View our latest analysis for Zydus Lifesciences

Zydus Lifesciences' Dividend Is Well Covered By Earnings

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.

Looking forward, earnings per share is forecast to rise by 21.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 8.6% by next year, which is in a pretty sustainable range.

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NSEI:ZYDUSLIFE Historic Dividend July 25th 2022

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from ₹1.25 total annually to ₹2.50. This implies that the company grew its distributions at a yearly rate of about 7.2% 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.

Zydus Lifesciences Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Zydus Lifesciences has grown earnings per share at 8.5% per 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

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Zydus Lifesciences has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Zydus Lifesciences that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.