Gujarat Gas (NSE:GUJGASLTD) Will Pay A Smaller Dividend Than Last Year

Gujarat Gas Limited (NSE:GUJGASLTD) is reducing its dividend from last year's comparable payment to ₹5.66 on the 25th of October. This means that the annual payment is 0.8% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Gujarat Gas

Gujarat Gas' Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Gujarat Gas' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 53.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 26% by next year, which is in a pretty sustainable range.

Gujarat Gas Is Still Building Its Track Record

It is great to see that Gujarat Gas has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through 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. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Gujarat Gas has seen EPS rising for the last five years, at 19% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Gujarat Gas' prospects of growing its dividend payments in the future.

Gujarat Gas Looks Like A Great Dividend Stock

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. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Gujarat Gas that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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