Federal Bank (NSE:FEDERALBNK) Has Announced That It Will Be Increasing Its Dividend To ₹1.20

The Federal Bank Limited (NSE:FEDERALBNK) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of September to ₹1.20. Although the dividend is now higher, the yield is only 0.6%, which is below the industry average.

View our latest analysis for Federal Bank

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

Even a low dividend yield can be attractive if it is sustained for years on end.

Federal Bank has a long history of paying out dividends, with its current track record at a minimum of 10 years. While past records don't necessarily translate into future results, the company's payout ratio of 7.2% also shows that Federal Bank is able to comfortably pay dividends.

The next 3 years are set to see EPS grow by 47.5%. Analysts forecast the future payout ratio could be 11% over the same time horizon, which is a number we think the company can maintain.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from ₹1.00 total annually to ₹1.20. This implies that the company grew its distributions at a yearly rate of about 1.8% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Federal Bank has impressed us by growing EPS at 18% per year over the past five years. Federal Bank definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Federal 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. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Federal Bank that investors need to be conscious of moving forward. Is Federal Bank 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.