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

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Zydus Lifesciences was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 9.3%. If the dividend continues on this path, the payout ratio could be 7.5% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from ₹1.80 total annually to ₹3.00. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Zydus Lifesciences has seen EPS rising for the last five years, at 16% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Zydus Lifesciences' prospects of growing its dividend payments in the future.

Zydus Lifesciences Looks Like A Great Dividend Stock

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 in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Earnings growth generally bodes well for the future value of company dividend payments. See if the 28 Zydus Lifesciences analysts we track are forecasting continued growth with our free report on analyst estimates for the company. 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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