Amara Raja Energy & Mobility (NSE:ARE&M) Is Increasing Its Dividend To ₹5.30

Amara Raja Energy & Mobility Limited (NSE:ARE&M) will increase its dividend from last year's comparable payment on the 3rd of December to ₹5.30. This makes the dividend yield 0.8%, which is above the industry average.

See our latest analysis for Amara Raja Energy & Mobility

Amara Raja Energy & Mobility's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Amara Raja Energy & Mobility's dividend was comfortably covered by both cash flow and earnings. 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 38.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 15%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was ₹3.23, compared to the most recent full-year payment of ₹10.20. This means that it has been growing its distributions at 12% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

We Could See Amara Raja Energy & Mobility's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Amara Raja Energy & Mobility has seen EPS rising for the last five years, at 8.5% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Amara Raja Energy & Mobility Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Amara Raja Energy & Mobility that investors should know about before committing capital to this stock. 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.