The board of Can Fin Homes Limited (NSE:CANFINHOME) has announced that it will pay a dividend on the 8th of October, with investors receiving ₹2.00 per share. This payment means the dividend yield will be 0.4%, which is below the average for the industry.
Can Fin Homes' Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Can Fin Homes is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Looking forward, earnings per share could rise by 22.0% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 4.9% by next year, which we think can be pretty sustainable going forward.
Can Fin Homes Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from ₹0.50 in 2011 to the most recent annual payment of ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
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 Can Fin Homes has grown earnings per share at 22% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Can Fin Homes is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Now, if you want to look closer, it would be worth checking out our free research on Can Fin Homes management tenure, salary, and performance. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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