Karnataka Bank (NSE:KTKBANK) Is Paying Out A Larger Dividend Than Last Year

The Karnataka Bank Limited (NSE:KTKBANK) has announced that it will be increasing its dividend from last year's comparable payment on the 10th of October to ₹5.50. This will take the annual payment to 2.4% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Karnataka Bank

Karnataka 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, Karnataka Bank has a long history of paying out a part of its earnings to shareholders. Using data from its latest earnings report, Karnataka Bank's payout ratio sits at 14%, an extremely comfortable number that shows that it can pay its dividend.

Over the next year, EPS is forecast to expand by 6.6%. If the dividend continues along recent trends, we estimate the future payout ratio will be 15%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 an annual total of ₹3.64 in 2014 to the most recent total annual payment of ₹5.50. This works out to be a compound annual growth rate (CAGR) of approximately 4.2% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

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. Karnataka Bank has impressed us by growing EPS at 18% per year over the past five years. Karnataka Bank definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

An additional note is that the company has been raising capital by issuing stock equal to 21% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

We Really Like Karnataka Bank's Dividend

Overall, a dividend increase is always good, and we think that Karnataka Bank is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Karnataka Bank that investors should take into consideration. Is Karnataka 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.

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