Kennametal India (NSE:KENNAMET) Is Increasing Its Dividend To ₹24.00

The board of Kennametal India Limited (NSE:KENNAMET) has announced that the dividend on 10th of June will be increased to ₹24.00, which will be 20% higher than last year. This makes the dividend yield 1.4%, which is above the industry average.

Check out our latest analysis for Kennametal India

Kennametal India's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Kennametal India was easily earning enough to cover the dividend. 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 33.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 52% 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 first annual payment during the last 10 years was ₹35.00 in 2012, and the most recent fiscal year payment was ₹20.00. Doing the maths, this is a decline of about 5.4% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Kennametal India has seen EPS rising for the last five years, at 33% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Kennametal India's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Kennametal India 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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