Munjal Showa's (NSE:MUNJALSHOW) Dividend Will Be ₹4.50

The board of 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 2.8% of the current stock price, which is above the average for the industry.

View our latest analysis for Munjal Showa

Munjal Showa's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment was quite easily covered by earnings, but it made up 250% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut 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 69%, 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 dividend has gone from an annual total of ₹3.00 in 2014 to the most recent total annual payment of ₹4.50. This means that it has been growing its distributions at 4.1% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 13% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Munjal Showa (1 is potentially serious!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com