J. Kumar Infraprojects' (NSE:JKIL) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of J. Kumar Infraprojects Limited (NSE:JKIL) has announced that it will be paying its dividend of ₹3.50 on the 26th of October, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 0.9%.

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 J. Kumar Infraprojects' stock price has increased by 55% 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 J. Kumar Infraprojects

J. Kumar Infraprojects' Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, J. Kumar Infraprojects' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 19.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 8.1%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 dividend has gone from an annual total of ₹1.13 in 2013 to the most recent total annual payment of ₹3.50. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. J. Kumar Infraprojects has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that J. Kumar Infraprojects has been growing its earnings per share at 13% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On J. Kumar Infraprojects' Dividend

In summary, while it's always good to see the dividend being raised, we don't think J. Kumar Infraprojects' payments are rock solid. While J. Kumar Infraprojects is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 J. Kumar Infraprojects that investors should know about before committing capital to this stock. 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.