Sterling Tools' (NSE:STERTOOLS) Dividend Will Be ₹2.00

Sterling Tools Limited (NSE:STERTOOLS) has announced that it will pay a dividend of ₹2.00 per share on the 13th of October. Including this payment, the dividend yield on the stock will be 0.4%, which is a modest boost for shareholders' returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Sterling Tools' stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Sterling Tools

Sterling Tools' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Sterling Tools was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 21.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 10% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was ₹1.00, compared to the most recent full-year payment of ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Sterling Tools has grown earnings per share at 8.9% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Sterling Tools' Dividend

Overall, we like to see the dividend staying consistent, and we think Sterling Tools might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. As an example, we've identified 1 warning sign for Sterling Tools that you should be aware of before investing. Is Sterling Tools 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.