Munjal Showa (NSE:MUNJALSHOW) Has Announced A Dividend Of ₹4.50

Munjal Showa Limited (NSE:MUNJALSHOW) has announced that it will pay a dividend of ₹4.50 per share on the 20th of September. This means the annual payment is 2.9% of the current stock price, which is above the average for the industry.

View our latest analysis for Munjal Showa

Munjal Showa's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 250% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, EPS could fall by 13.2% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 67%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Munjal Showa Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was ₹3.00 in 2014, and the most recent fiscal year payment was ₹4.50. This means that it has been growing its distributions at 4.1% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Munjal Showa's EPS has fallen by approximately 13% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Munjal Showa (1 is concerning!) that you should be aware of before investing. Is Munjal Showa not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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