India Nippon Electricals (NSE:INDNIPPON) Is Paying Out A Larger Dividend Than Last Year

The board of India Nippon Electricals Limited (NSE:INDNIPPON) has announced that it will be paying its dividend of ₹9.25 on the 16th of March, an increased payment from last year's comparable dividend. This will take the annual payment to 2.5% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for India Nippon Electricals

India Nippon Electricals' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, India Nippon Electricals' earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

If the trend of the last few years continues, EPS will grow by 0.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 41%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was ₹4.50, compared to the most recent full-year payment of ₹9.25. This means that it has been growing its distributions at 7.5% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. India Nippon Electricals hasn't seen much change in its earnings per share over the last five years. Growth of 0.9% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On India Nippon Electricals' Dividend

In summary, while it's always good to see the dividend being raised, we don't think India Nippon Electricals' payments are rock solid. While India Nippon Electricals is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for India Nippon Electricals you should be aware of, and 1 of them shouldn't be ignored. Is India Nippon Electricals not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.