Kajaria Ceramics' (NSE:KAJARIACER) Dividend Will Be Reduced To ₹5.00

The board of Kajaria Ceramics Limited (NSE:KAJARIACER) has announced it will be reducing its dividend by 17% from last year's payment of ₹6.00 on the 20th of November, with shareholders receiving ₹5.00. This means the annual payment is 1.0% of the current stock price, which is above the average for the industry.

See our latest analysis for Kajaria Ceramics

Kajaria Ceramics' Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by Kajaria Ceramics' earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Looking forward, earnings per share is forecast to rise by 77.8% over the next year. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was ₹1.75, compared to the most recent full-year payment of ₹12.00. This works out to be a compound annual growth rate (CAGR) of approximately 21% 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.

We Could See Kajaria Ceramics' Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Kajaria Ceramics has impressed us by growing EPS at 6.7% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On Kajaria Ceramics' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Kajaria Ceramics is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Kajaria Ceramics that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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