Amara Raja Batteries (NSE:AMARAJABAT) Is Increasing Its Dividend To ₹3.20

Amara Raja Batteries Limited (NSE:AMARAJABAT) will increase its dividend on the 11th of September to ₹3.20, which is 540% higher than last year's payment from the same period of ₹0.50. This takes the annual payment to 0.6% of the current stock price, which is about average for the industry.

See our latest analysis for Amara Raja Batteries

Amara Raja Batteries' Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, Amara Raja Batteries' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 56.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 11%, 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. Since 2013, the annual payment back then was ₹1.89, compared to the most recent full-year payment of ₹3.40. This means that it has been growing its distributions at 6.0% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

We Could See Amara Raja Batteries' Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Amara Raja Batteries has impressed us by growing EPS at 7.3% per year over the past five years. Amara Raja Batteries definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Amara Raja Batteries' Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. As an example, we've identified 1 warning sign for Amara Raja Batteries that you should be aware of before investing. Is Amara Raja Batteries 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.