Indian Bank (NSE:INDIANB) Is Increasing Its Dividend To ₹12.00

The board of Indian Bank (NSE:INDIANB) has announced that it will be paying its dividend of ₹12.00 on the 15th of July, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 1.6%, providing a nice boost to shareholder returns.

See our latest analysis for Indian Bank

Indian Bank's Earnings Will Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Having distributed dividends for at least 10 years, Indian Bank has a long history of paying out a part of its earnings to shareholders. While past records don't necessarily translate into future results, the company's payout ratio of 19% also shows that Indian Bank is able to comfortably pay dividends.

Over the next 3 years, EPS is forecast to expand by 28.9%. 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 has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ₹6.60 in 2014 to the most recent total annual payment of ₹8.60. This works out to be a compound annual growth rate (CAGR) of approximately 2.7% a year 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Indian Bank has impressed us by growing EPS at 51% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Indian Bank's Dividend

Overall, a dividend increase is always good, and we think that Indian Bank is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Indian Bank that investors need to be conscious of moving forward. 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.