Karnataka Bank's (NSE:KTKBANK) Upcoming Dividend Will Be Larger Than Last Year's

The Karnataka Bank Limited (NSE:KTKBANK) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of September to ₹4.00. This will take the dividend yield to an attractive 5.9%, providing a nice boost to shareholder returns.

View our latest analysis for Karnataka Bank

Karnataka Bank's Payment Expected To Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments 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 data isn't a guarantee for the future, Karnataka Bank's latest earnings report puts its payout ratio at 24%, showing that the company can pay out its dividends comfortably.

Over the next year, EPS could expand by 0.2% if recent trends continue. Assuming the dividend continues along recent trends, we think the future payout ratio could be 23% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was ₹3.18, compared to the most recent full-year payment of ₹4.00. This means that it has been growing its distributions at 2.3% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Karnataka Bank hasn't seen much change in its earnings per share over the last five years. If Karnataka Bank is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On Karnataka Bank's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Karnataka Bank that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.