Sun Pharmaceutical Industries Limited (NSE: SUNPHARMA) announced that it will increase its dividend on September 17 to 2.00. This brings the dividend yield from 1.0% to 1.0%, which shareholders will be delighted with.
Check out our latest review for Sun Pharmaceutical Industries
Sun Pharmaceutical Industries’ revenues easily cover distributions
A high dividend yield for a few years doesn’t mean much if it can’t be sustained. However, Sun Pharmaceutical Industries’ profits easily cover the dividend. As a result, much of what she earned was reinvested in the business.
Next year, EPS is expected to increase 16.3%. If the dividend continues according to recent trends, we estimate that the payout ratio will be 31%, which is within the range that puts us at ease with the sustainability of the dividend.
Although the company has a long history of dividends, it has been cut at least once in the past 10 years. The dividend went from 1.75 in 2011 to the last annual payment of 7.50. This works out to a compound annual growth rate (CAGR) of around 16% per year over that time period. Sun Pharmaceutical Industries has increased its distributions at a rapid pace despite the dividend reduction at least once in the past. Companies that cut once often cut again, so we would be cautious about buying these stocks just for dividend income.
Prospects for dividend growth are limited
With a relatively volatile dividend, it is even more important to see if earnings per share increase. Sun Pharmaceutical Industries hasn’t seen much change in earnings per share over the past five years.
Overall, we still like to see the dividend increase, but we don’t think Sun Pharmaceutical Industries will be a good income security. In the past, payments have been volatile, but in the short term the dividend could be reliable as the company generates enough cash to cover it. Overall, we don’t think this company has the makings of a good income stock.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. However, there are other things for investors to consider when analyzing the performance of stocks. For example, we have chosen 1 warning sign for Sun Pharmaceutical Industries that investors should be aware of before committing capital to this stock. Looking for more high yield dividend ideas? Try our organized list of big dividend payers.
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