Indraprastha Gas' (NSE:IGL) Dividend Will Be Reduced To ₹1.50

Indraprastha Gas Limited's (NSE:IGL) dividend is being reduced from last year's payment covering the same period to ₹1.50 on the 26th of October. The dividend yield of 3.3% is still a nice boost to shareholder returns, despite the cut.

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Indraprastha Gas' Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by Indraprastha Gas' earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to expand by 8.7%. If the dividend continues on this path, the payout ratio could be 65% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Indraprastha Gas

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹0.55 in 2015, and the most recent fiscal year payment was ₹7.00. This means that it has been growing its distributions at 29% per annum over that time. Indraprastha Gas 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.

We Could See Indraprastha Gas' Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Indraprastha Gas has impressed us by growing EPS at 9.9% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Indraprastha Gas has been making. We don't think Indraprastha Gas is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Indraprastha Gas 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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