Gujarat Pipavav Port (NSE:GPPL) Is Increasing Its Dividend To ₹3.60

The board of Gujarat Pipavav Port Limited (NSE:GPPL) has announced that it will be paying its dividend of ₹3.60 on the 8th of December, an increased payment from last year's comparable dividend. This will take the annual payment to 5.3% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Gujarat Pipavav Port

Gujarat Pipavav Port's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend made up a very large portion of earnings and also represented 90% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

EPS is set to grow by 37.3% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 77% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Gujarat Pipavav Port's Dividend Has Lacked Consistency

It's comforting to see that Gujarat Pipavav Port has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 7 years was ₹1.90 in 2016, and the most recent fiscal year payment was ₹7.20. This means that it has been growing its distributions at 21% per annum over that time. Gujarat Pipavav Port has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Gujarat Pipavav Port Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Gujarat Pipavav Port has impressed us by growing EPS at 7.6% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On Gujarat Pipavav Port's Dividend

Overall, we always like to see the dividend being raised, but we don't think Gujarat Pipavav Port will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Gujarat Pipavav Port is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Gujarat Pipavav Port that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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