Electrosteel Castings (NSE:ELECTCAST) Will Pay A Larger Dividend Than Last Year At ₹0.90

Electrosteel Castings Limited's (NSE:ELECTCAST) dividend will be increasing from last year's payment of the same period to ₹0.90 on 11th of October. This makes the dividend yield 1.5%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Electrosteel Castings' stock price has increased by 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Electrosteel Castings

Electrosteel Castings' Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Electrosteel Castings' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 22.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 15% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹0.50 in 2013, and the most recent fiscal year payment was ₹0.90. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Electrosteel Castings might have put its house in order since then, but we remain cautious.

Electrosteel Castings Could Grow Its Dividend

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. It's encouraging to see that Electrosteel Castings has been growing its earnings per share at 7.4% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Electrosteel Castings you should be aware of, and 1 of them doesn't sit too well with us. Is Electrosteel Castings 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.