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

Zydus Lifesciences Limited (NSE:ZYDUSLIFE) has announced that on 8th of September, it will be paying a dividend of₹3.00, which a reduction from last year's comparable dividend. This means that the annual payment is 0.3% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Zydus Lifesciences

Zydus Lifesciences' Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Zydus Lifesciences was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 8.3%. If the dividend continues on this path, the payout ratio could be 7.6% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ₹1.80 in 2014, and the most recent fiscal year payment was ₹3.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Zydus Lifesciences has seen EPS rising for the last five years, at 16% per annum. 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

Overall, we think that Zydus Lifesciences could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. 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. However, there are other things to consider for investors when analysing stock performance. 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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