DCB Bank (NSE:DCBBANK) Has Announced That It Will Be Increasing Its Dividend To ₹1.25

DCB Bank Limited (NSE:DCBBANK) will increase its dividend from last year's comparable payment on the 22nd of July to ₹1.25. This takes the annual payment to 1.1% of the current stock price, which is about average for the industry.

See our latest analysis for DCB Bank

DCB Bank's Dividend Forecasted To Be Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.

Having paid out dividends for 6 years, DCB Bank has a good history of paying out a part of its earnings to shareholders. While past data isn't a guarantee for the future, DCB Bank's latest earnings report puts its payout ratio at 8.4%, showing that the company can pay out its dividends comfortably.

Over the next 3 years, EPS is forecast to expand by 72.1%. Analysts forecast the future payout ratio could be 8.5% over the same time horizon, which is a number we think the company can maintain.

DCB Bank's Dividend Has Lacked Consistency

DCB Bank has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the dividend has gone from ₹0.50 total annually to ₹1.25. This means that it has been growing its distributions at 16% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that DCB Bank has been growing its earnings per share at 13% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for DCB Bank's prospects of growing its dividend payments in the future.

DCB Bank Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

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. Case in point: We've spotted 2 warning signs for DCB Bank (of which 1 doesn't sit too well with us!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.