Gujarat Gas' (NSE:GUJGASLTD) Shareholders Will Receive A Smaller Dividend Than Last Year

Gujarat Gas Limited's (NSE:GUJGASLTD) dividend is being reduced from last year's payment covering the same period to ₹5.66 on the 25th of October. Based on this payment, the dividend yield will be 0.9%, which is lower than the average for the industry.

Check out our latest analysis for Gujarat Gas

Gujarat Gas' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Gujarat Gas 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.

The next year is set to see EPS grow by 52.2%. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

Gujarat Gas' Dividend Has Lacked Consistency

Looking back, Gujarat Gas' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of ₹0.50 in 2016 to the most recent total annual payment of ₹5.66. This implies that the company grew its distributions at a yearly rate of about 35% over that duration. 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.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Gujarat Gas has grown earnings per share at 19% per year over the past five years. 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 Gujarat Gas' Dividend

Overall, we think that Gujarat Gas could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Gujarat Gas that investors need to be conscious of moving forward. Is Gujarat Gas not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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