Ingersoll-Rand (India)'s (NSE:INGERRAND) Shareholders Will Receive A Bigger Dividend Than Last Year

Ingersoll-Rand (India) Limited (NSE:INGERRAND) will increase its dividend on the 11th of December to ₹55.00, which is 10% higher than last year's payment from the same period of ₹50.00. This will take the annual payment to 1.7% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Ingersoll-Rand (India)

Ingersoll-Rand (India)'s Projections Indicate Future Payments May Be Unsustainable

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Ingersoll-Rand (India)'s dividend was only 26% of earnings, however it was paying out 110% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

EPS is set to grow by 24.8% over the next year if recent trends continue. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 102% over the next year.

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. Since 2014, the annual payment back then was ₹6.00, compared to the most recent full-year payment of ₹70.00. This works out to be a compound annual growth rate (CAGR) of approximately 28% 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

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. Ingersoll-Rand (India) has impressed us by growing EPS at 25% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Ingersoll-Rand (India)'s Dividend

In summary, while it's always good to see the dividend being raised, we don't think Ingersoll-Rand (India)'s payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Ingersoll-Rand (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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Ingersoll-Rand (India) that investors need to be conscious of moving forward. Is Ingersoll-Rand (India) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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