Engineers India (NSE:ENGINERSIN) Will Pay A Larger Dividend Than Last Year At ₹1.00

The board of Engineers India Limited (NSE:ENGINERSIN) has announced that it will be paying its dividend of ₹1.00 on the 27th of October, an increased payment from last year's comparable dividend. This takes the dividend yield to 4.5%, which shareholders will be pleased with.

View our latest analysis for Engineers India

Engineers India's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Engineers India was paying out quite a large proportion of both earnings and cash flow, with the dividend being 747% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, earnings per share is forecast to rise by 39.1% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 60% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹2.50 in 2012, and the most recent fiscal year payment was ₹3.00. This works out to be a compound annual growth rate (CAGR) of approximately 1.8% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Engineers India has seen earnings per share falling at 6.0% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Engineers India will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

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. Taking the debate a bit further, we've identified 1 warning sign for Engineers India that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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