Gujarat Pipavav Port's (NSE:GPPL) Dividend Will Be ₹2.40

Gujarat Pipavav Port Limited (NSE:GPPL) has announced that it will pay a dividend of ₹2.40 per share on the 2nd of September. The dividend yield will be 4.8% based on this payment which is still above the industry average.

View our latest analysis for Gujarat Pipavav Port

Gujarat Pipavav Port's Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Gujarat Pipavav Port's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

The next year is set to see EPS grow by 65.1%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 65% which would be quite comfortable going to take the dividend forward.

Gujarat Pipavav Port's Dividend Has Lacked Consistency

Looking back, Gujarat Pipavav Port's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the dividend has gone from ₹1.90 to ₹4.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Gujarat Pipavav Port's earnings per share has fallen at approximately 6.9% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Gujarat Pipavav Port's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Gujarat Pipavav Port is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Gujarat Pipavav Port that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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