IIFL Finance's (NSE:IIFL) Dividend Will Be Increased To ₹4.00

The board of IIFL Finance Limited (NSE:IIFL) has announced that it will be paying its dividend of ₹4.00 on the 28th of February, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 0.8%, which is below the industry average.

View our latest analysis for IIFL Finance

IIFL Finance'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.

IIFL Finance has a long history of paying out dividends, with its current track record at a minimum of 10 years. Despite this history however, the company's latest earnings report actually shows that it didn't have enough earnings to cover its dividends. This is an alarming sign that could mean that IIFL Finance's dividend at its current rate may no longer be sustainable for longer.

Over the next year, EPS is forecast to expand by 24.7%. If the dividend continues on this path, the future payout ratio could be 7.3% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹1.50 in 2013, and the most recent fiscal year payment was ₹4.00. This means that it has been growing its distributions at 10% per annum over that time. IIFL Finance has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

IIFL Finance Could Grow Its Dividend

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. We are encouraged to see that IIFL Finance has grown earnings per share at 6.7% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for IIFL Finance's prospects of growing its dividend payments in the future.

Our Thoughts On IIFL Finance's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. For example, we've picked out 1 warning sign for IIFL Finance that investors should know about before committing capital to this stock. 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.