Kirloskar Oil Engines (NSE:KIRLOSENG) Has Affirmed Its Dividend Of ₹2.50

The board of Kirloskar Oil Engines Limited (NSE:KIRLOSENG) has announced that it will pay a dividend of ₹2.50 per share on the 9th of September. The dividend yield will be 3.0% based on this payment which is still above the industry average.

Check out our latest analysis for Kirloskar Oil Engines

Kirloskar Oil Engines' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Kirloskar Oil Engines' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 19.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The most recent annual payment of ₹4.00 is about the same as the first annual payment 10 years ago. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Kirloskar Oil Engines May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Kirloskar Oil Engines' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. If Kirloskar Oil Engines is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kirloskar Oil Engines' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Kirloskar Oil Engines is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Kirloskar Oil Engines (2 are a bit unpleasant!) that you should be aware of before investing. Is Kirloskar Oil Engines not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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