Amara Raja Energy & Mobility's (NSE:ARE&M) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Amara Raja Energy & Mobility Limited (NSE:ARE&M) has announced that it will be increasing its dividend by 1.9% on the 5th of December to ₹5.40, up from last year's comparable payment of ₹5.30. This takes the dividend yield to 1.1%, which shareholders will be pleased with.

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

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Amara Raja Energy & Mobility was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 40.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 16% by next year, which is in a pretty sustainable range.

See our latest analysis for Amara Raja Energy & Mobility

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ₹3.61 in 2015, and the most recent fiscal year payment was ₹10.50. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. 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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Amara Raja Energy & Mobility has seen EPS rising for the last five years, at 8.3% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Amara Raja Energy & Mobility's prospects of growing its dividend payments in the future.

Our Thoughts On Amara Raja Energy & Mobility's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Amara Raja Energy & Mobility is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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.