Zydus Lifesciences (NSE:ZYDUSLIFE) Will Pay A Smaller Dividend Than Last Year

Zydus Lifesciences Limited (NSE:ZYDUSLIFE) is reducing its dividend from last year's comparable payment to ₹3.00 on the 8th of September. Based on this payment, the dividend yield will be 0.3%, which is lower than the average for 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. However, Zydus Lifesciences' earnings easily 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 7.8%. 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 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 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. Zydus Lifesciences definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

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. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. 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. 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 2 warning signs 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.

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