Indraprastha Gas' (NSE:IGL) Shareholders Will Receive A Smaller Dividend Than Last Year

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. However, the dividend yield of 3.4% is still a decent boost to shareholder returns.

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Indraprastha Gas' Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Indraprastha Gas was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 95% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 8.7%. If the dividend continues on this path, the payout ratio could be 64% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Indraprastha Gas

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹0.55 in 2015, and the most recent fiscal year payment was ₹7.00. This implies that the company grew its distributions at a yearly rate of about 29% 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.

We Could See Indraprastha Gas' Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Indraprastha Gas has grown earnings per share at 9.9% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Indraprastha Gas has been making. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Indraprastha Gas that investors should know about before committing capital to this stock. Is Indraprastha Gas not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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