ESAB India's (NSE:ESABINDIA) Dividend Will Be Increased To ₹32.00

The board of ESAB India Limited (NSE:ESABINDIA) has announced that it will be increasing its dividend by 6.7% on the 8th of December to ₹32.00, up from last year's comparable payment of ₹30.00. This will take the dividend yield to an attractive 1.3%, providing a nice boost to shareholder returns.

View our latest analysis for ESAB India

ESAB India's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. At the time of the last dividend payment, ESAB India was paying out a very large proportion of what it was earning and 126% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

EPS is set to grow by 28.5% over the next year if recent trends continue. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 76%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from ₹7.50 total annually to ₹78.00. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. ESAB India has impressed us by growing EPS at 29% 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.

ESAB India's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think ESAB India will make a great income stock. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing 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. 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.