Karnataka Bank's (NSE:KTKBANK) Dividend Will Be Increased To ₹4.00

The Karnataka Bank Limited (NSE:KTKBANK) will increase its dividend from last year's comparable payment on the 25th of September to ₹4.00. This makes the dividend yield 5.3%, which is above the industry average.

See our latest analysis for Karnataka Bank

Karnataka Bank's Dividend Forecasted To Be Well Covered By Earnings

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

Karnataka Bank has a long history of paying out dividends, with its current track record at a minimum of 10 years. Using data from its latest earnings report, Karnataka Bank's payout ratio sits at 24%, an extremely comfortable number that shows that it can pay its dividend.

Looking forward, earnings per share could rise by 0.2% over the next year if the trend from the last few years continues. If the dividend continues on this path, the future payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ₹3.18 in 2012, and the most recent fiscal year payment was ₹4.00. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. 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.

Karnataka Bank May Find It Hard To Grow The 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. Unfortunately, Karnataka Bank's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. If Karnataka Bank is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing 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.