Karur Vysya Bank (NSE:KARURVYSYA) Is Increasing Its Dividend To ₹1.60

The board of The Karur Vysya Bank Limited (NSE:KARURVYSYA) has announced that it will be increasing its dividend on the 2nd of September to ₹1.60. This will take the annual payment from 3.5% to 3.5% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Karur Vysya Bank

Karur Vysya Bank's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Karur Vysya Bank was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Unless the company can turn things around, EPS could fall by 1.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 17%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from ₹2.18 in 2012 to the most recent annual payment of ₹1.60. This works out to be a decline of approximately 3.1% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Karur Vysya Bank hasn't seen much change in its earnings per share over the last five years.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Karur Vysya Bank's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 3 warning signs for Karur Vysya Bank (of which 2 are potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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