South Indian Bank (NSE:SOUTHBANK) Has Announced A Dividend Of ₹0.30

The board of The South Indian Bank Limited (NSE:SOUTHBANK) has announced that it will pay a dividend on the 26th of September, with investors receiving ₹0.30 per share. This payment means that the dividend yield will be 1.1%, which is around the industry average.

See our latest analysis for South Indian Bank

South Indian Bank's Dividend Forecasted To Be Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much.

South Indian 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, South Indian Bank's payout ratio sits at 5.9%, an extremely comfortable number that shows that it can pay its dividend.

EPS is set to fall by 0.7% over the next 3 years. Fortunately, analysts forecast the future payout ratio to be 10% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ₹0.80 in 2014 to the most recent total annual payment of ₹0.30. The dividend has shrunk at around 9.3% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. We are encouraged to see that South Indian Bank has grown earnings per share at 22% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

An additional note is that the company has been raising capital by issuing stock equal to 25% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

We Really Like South Indian Bank's Dividend

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for South Indian Bank that you should be aware of before investing. 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.

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