Amara Raja Batteries (NSE:AMARAJABAT) Is Paying Out A Larger Dividend Than Last Year

Amara Raja Batteries Limited (NSE:AMARAJABAT) will increase its dividend from last year's comparable payment on the 11th of September to ₹3.20. This will take the annual payment to 0.9% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Amara Raja Batteries

Amara Raja Batteries' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Amara Raja Batteries was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 33.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.

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. Since 2013, the annual payment back then was ₹1.89, compared to the most recent full-year payment of ₹6.10. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Amara Raja Batteries has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See Amara Raja Batteries' Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Amara Raja Batteries has seen EPS rising for the last five years, at 8.1% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Amara Raja Batteries' prospects of growing its dividend payments in the future.

We Really Like Amara Raja Batteries' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Amara Raja Batteries that investors should know about before committing capital to this stock. 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.