ESAB India (NSE:ESABINDIA) Will Pay A Dividend Of ₹20.00

ESAB India Limited's (NSE:ESABINDIA) investors are due to receive a payment of ₹20.00 per share on 9th of September. This means the annual payment is 1.9% of the current stock price, which is above the average for the industry.

Check out our latest analysis for ESAB India

ESAB India's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, ESAB India's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 126% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

EPS is set to grow by 29.6% over the next year if recent trends continue. If recent patterns in the dividend continue, the payout ratio in 12 months could be 83% which is a bit high but can definitely be sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ₹15.00 in 2013 to the most recent total annual payment of ₹78.00. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. 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.

ESAB India's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that ESAB India has grown earnings per share at 30% per 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about ESAB India's payments, as there could be some issues with sustaining them into the future. 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 don't think ESAB India is a great stock to add to your portfolio if income is your focus.

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 2 warning signs for ESAB India you should be aware of, and 1 of them is a bit unpleasant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.