Karnataka Bank's (NSE:KTKBANK) Dividend Is Being Reduced To ₹5.00

The Karnataka Bank Limited (NSE:KTKBANK) has announced that on 23rd of October, it will be paying a dividend of₹5.00, which a reduction from last year's comparable dividend. The dividend yield of 2.9% is still a nice boost to shareholder returns, despite the cut.

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Karnataka Bank's Earnings Will Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Karnataka Bank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. While past records don't necessarily translate into future results, the company's payout ratio of 15% also shows that Karnataka Bank is able to comfortably pay dividends.

Looking forward, EPS is forecast to rise by 23.9% over the next 3 years. The future payout ratio could be 17% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

See our latest analysis for Karnataka Bank

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 ₹4.55 in 2015 to the most recent total annual payment of ₹5.00. Dividend payments have been growing, but very slowly over the period. 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Karnataka Bank has grown earnings per share at 16% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like Karnataka Bank's Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Karnataka Bank does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Karnataka Bank that investors should know about before committing capital to this stock. 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.