Munjal Showa (NSE:MUNJALSHOW) Is Paying Out A Dividend Of ₹4.50

Munjal Showa Limited's (NSE:MUNJALSHOW) investors are due to receive a payment of ₹4.50 per share on 21st of September. This makes the dividend yield 4.1%, which will augment investor returns quite nicely.

View our latest analysis for Munjal Showa

Munjal Showa's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

EPS is set to fall by 16.3% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, the payout ratio in 12 months could be 67%, which is more comfortable than the current payout ratio.

Munjal Showa Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was ₹3.00, compared to the most recent full-year payment of ₹4.50. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Munjal Showa's EPS has declined at around 16% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Munjal Showa's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Munjal Showa you should be aware of, and 2 of them are a bit unpleasant. 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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