Goodyear India (NSE:GOODYEAR) pays bigger dividend than last year

Goodyear India Limited (NSE:GOODYEAR) announced that it will increase its dividend on August 31 to ₹100.00. This will take the dividend yield from 1.9% to 9.5%, giving shareholder returns a nice boost.

Check out our latest analysis for Goodyear India

Goodyear India does not earn enough to cover its payments

Impressive dividend yields are good, but that doesn’t matter much if payouts can’t be sustained. Prior to this announcement, Goodyear India’s dividend was only 45% of earnings, but it paid 291% of free cash flow. This indicates that the company is more focused on returning cash flow to shareholders, but it could mean the dividend is exposed to cuts in the future.

Going forward, EPS could drop 4.2% if the company fails to turn around the situation of the past few years. If the dividend continues on the path it has taken recently, the 12-month payout rate could be 277%, which is certainly a bit high to be sustainable in the future.

NSEI: GOODYEAR Historic Dividend July 6, 2022

Dividend volatility

The company has a long history of dividends, but it doesn’t look good with the cuts of the past. Since 2012, the first annual payment was ₹7.00, compared to the last annual payment of ₹20.00. This equates to a compound annual growth rate (CAGR) of approximately 11% per year during this period. Despite rapid dividend growth over the past few years, we have also seen payouts decline in the past, which makes us cautious.

Dividend growth prospects are limited

Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. Goodyear India has seen its earnings per share fall by 4.2% annually over the past five years. A slight decline in earnings is not great, and it is unlikely that the dividend will increase in the future unless this trend can be reversed.

Goodyear India’s dividend does not look viable

Overall, we still like to see the dividend increase, but we don’t think Goodyear India will make a great income stock. While Goodyear India earns enough to cover payments, cash flow is lacking. This company is not in the high end of income providing stocks.

Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. However, there are other things for investors to consider when analyzing stock performance. For example, we have identified 3 warning signs for Goodyear India (1 is significant!) which you should be aware of before investing. Goodyear India not quite the opportunity you were looking for? Why not check out our selection of the best dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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