Indraprastha Gas (NSE:IGL) Will Pay A Larger Dividend Than Last Year At ₹5.50

Indraprastha Gas Limited (NSE:IGL) will increase its dividend on the 27th of November to ₹5.50, which is 38% higher than last year's payment from the same period of ₹4.00. This will take the dividend yield to an attractive 2.1%, providing a nice boost to shareholder returns.

View our latest analysis for Indraprastha Gas

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. Before making this announcement, Indraprastha Gas was paying a whopping 119% as a dividend, but this only made up 40% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

The next year is set to see EPS grow by 7.3%. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ₹1.10 in 2014, and the most recent fiscal year payment was ₹9.00. This means that it has been growing its distributions at 23% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Indraprastha Gas has been growing its earnings per share at 11% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Indraprastha Gas' prospects of growing its dividend payments in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

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. For instance, we've picked out 1 warning sign for Indraprastha Gas that investors should take into consideration. 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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