Isgec Heavy Engineering (NSE:ISGEC) Is Paying Out A Larger Dividend Than Last Year

Isgec Heavy Engineering Limited (NSE:ISGEC) will increase its dividend from last year's comparable payment on the 26th of September to ₹4.00. Despite this raise, the dividend yield of 0.3% is only a modest boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Isgec Heavy Engineering's stock price has increased by 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Isgec Heavy Engineering

Isgec Heavy Engineering's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Isgec Heavy Engineering's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 11.3% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 11% by next year, which is in a pretty sustainable range.

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 annual payment during the last 10 years was ₹1.00 in 2014, and the most recent fiscal year payment was ₹4.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Isgec Heavy Engineering has seen EPS rising for the last five years, at 11% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Isgec Heavy Engineering Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

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 instance, we've picked out 2 warning signs for Isgec Heavy Engineering that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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