Sona BLW Precision Forgings (NSE:SONACOMS) Is Increasing Its Dividend To ₹1.28

The board of Sona BLW Precision Forgings Limited (NSE:SONACOMS) has announced that it will be paying its dividend of ₹1.28 on the 23rd of February, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 0.6%, which is in line with the average for the industry.

View our latest analysis for Sona BLW Precision Forgings

Sona BLW Precision Forgings' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Sona BLW Precision Forgings' dividend was only 32% of earnings, however it was paying out 164% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 157.4%. If the dividend continues on this path, the payout ratio could be 9.9% by next year, which we think can be pretty sustainable going forward.

Sona BLW Precision Forgings Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Sona BLW Precision Forgings has grown earnings per share at 20% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. For instance, we've picked out 1 warning sign for Sona BLW Precision Forgings that investors should take into consideration. Is Sona BLW Precision Forgings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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