ESAB India (NSE:ESABINDIA) Is Paying Out Less In Dividends Than Last Year

ESAB India Limited (NSE:ESABINDIA) has announced it will be reducing its dividend payable on the 10th of September to ₹20.00. However, the dividend yield of 1.8% is still a decent boost to shareholder returns.

See our latest analysis for ESAB India

ESAB India Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, ESAB India was paying out 86% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

EPS is set to grow by 25.7% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 110%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was ₹15.00 in 2012, and the most recent fiscal year payment was ₹40.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

ESAB India's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see ESAB India has been growing its earnings per share at 26% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which ESAB India hasn't been doing.

Our Thoughts On ESAB India's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. Strong earnings growth means ESAB India has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for ESAB India that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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