Canara Bank's (NSE:CANBK) Upcoming Dividend Will Be Larger Than Last Year's

The board of Canara Bank (NSE:CANBK) has announced that it will be paying its dividend of ₹16.10 on the 28th of July, an increased payment from last year's comparable dividend. This makes the dividend yield 2.6%, which is above the industry average.

See our latest analysis for Canara Bank

Canara Bank's Payment Expected To Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Canara Bank has a long history of paying out dividends, with its current track record at a minimum of 10 years. While past data isn't a guarantee for the future, Canara Bank's latest earnings report puts its payout ratio at 19%, showing that the company can pay out its dividends comfortably.

Over the next 3 years, EPS is forecast to expand by 16.8%. Analysts estimate the future payout ratio will be 20% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from ₹2.60 total annually to ₹3.22. This means that it has been growing its distributions at 2.2% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Canara Bank has been growing its earnings per share at 59% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Canara Bank will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Canara Bank that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.

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