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Indoco Remedies Limited (NSE: INDOCO) has announced that it will increase its dividend on October 23 to 1.50. Even though the dividend has increased, the yield is still quite low at just 0.3%.
While dividend yield is important for income investors, it is also important to take into account any significant change in the price of the shares, as this will generally outweigh any gains from distributions. Investors will be delighted to see that the Indoco Remedies share price has risen 66% over the past 3 months, which is good for shareholders and may also explain a drop in dividend yield.
See our latest review for Indoco Remedies
Indoco Remedies payment has strong revenue coverage
Even a low dividend yield can be attractive if it lasts for years. Based on the last payment, Indoco Remedies paid only a fraction of the profits, but the payment was 257% of the cash flow. Although the company tries to establish a balanced dividend policy, such a high cash payout ratio could expose the dividend to a reduction if the company runs into trouble.
Next year, EPS is expected to increase 40.3%. If the dividend continues according to recent trends, we estimate the payout ratio will be 9.2%, which is within the range that puts us at ease with the sustainability of the dividend.
Dividend volatility
The company has a long history of dividends, but it doesn’t look good with the cuts of the past. Since 2011, the first annual payment was 0.93 yen, compared to 1.50 yen for the last annual payment. This means that he increased his distributions to 4.9% per annum during that period. The dividend has experienced some fluctuation in the past, so even though the dividend has been increased this year, we must remember that it has been reduced in the past.
Prospects for dividend growth are limited
With a relatively volatile dividend, it is even more important to see if earnings per share increase. Incomes have grown by around 2.6% per year over the past five years which is not huge but still better than seeing them decrease. While growth may be slender in the field, Indoco Remedies could still pay a higher proportion of profits to increase shareholder returns.
Our thoughts on the Indoco Remedies dividend
Overall, we still like to see the dividend go up, but we don’t think Indoco Remedies will be a great income title. While the low payout rate is a redemption feature, this is offset by the minimum amount of money to cover the payouts. We don’t think Indoco Remedies is a great stock to add to your portfolio if income is your goal.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. At the same time, there are other factors that our readers should be aware of before investing any capital in a stock. Taking the debate a step further, we identified 1 warning sign for Indoco Remedies that investors need to be aware of moving forward. We have also set up a list of global stocks with a solid dividend.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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