Elgi Equipments (NSE:ELGIEQUIP) Is Paying Out A Larger Dividend Than Last Year

Elgi Equipments Limited's (NSE:ELGIEQUIP) dividend will be increasing from last year's payment of the same period to ₹1.15 on 11th of September. This takes the annual payment to 0.3% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Elgi Equipments

Elgi Equipments' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Elgi Equipments was paying only paying out a fraction of earnings, but the payment was a massive 130% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 29.4%. If the dividend continues on this path, the payout ratio could be 17% by next year, which we think can be pretty sustainable going forward.

Elgi Equipments Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of ₹0.50 in 2012 to the most recent total annual payment of ₹1.15. This works out to be a compound annual growth rate (CAGR) of approximately 8.7% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Elgi Equipments has grown earnings per share at 19% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Elgi Equipments' prospects of growing its dividend payments in the future.

Our Thoughts On Elgi Equipments' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Elgi Equipments that you should be aware of before investing. Is Elgi Equipments not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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