ESAB India's (NSE:ESABINDIA) Dividend Will Be Increased To ₹28.00

The board of ESAB India Limited (NSE:ESABINDIA) has announced that the dividend on 10th of March will be increased to ₹28.00, which will be 56% higher than last year's payment of ₹18.00 which covered the same period. This makes the dividend yield 1.7%, which is above the industry average.

Check out our latest analysis for ESAB India

ESAB India Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, ESAB India's dividend was only 67% of earnings, however it was paying out 107% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Earnings per share could rise by 32.5% over the next year if things go the same way as they have for the last few years. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 96% over the next year.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ₹15.00 in 2013, and the most recent fiscal year payment was ₹68.00. This works out to be a compound annual growth rate (CAGR) of approximately 16% 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. ESAB India has impressed us by growing EPS at 33% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that ESAB India could prove to be a strong dividend payer.

Our Thoughts On ESAB India's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While ESAB India is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for ESAB India that investors need to be conscious of moving forward. Is ESAB India 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.