Kirloskar Oil Engines (NSE:KIRLOSENG) Is Paying Out A Dividend Of ₹2.50

The board of Kirloskar Oil Engines Limited (NSE:KIRLOSENG) has announced that it will pay a dividend on the 10th of September, with investors receiving ₹2.50 per share. Based on this payment, the dividend yield on the company's stock will be 1.1%, which is an attractive boost to shareholder returns.

View our latest analysis for Kirloskar Oil Engines

Kirloskar Oil Engines' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Kirloskar Oil Engines was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 29.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 16% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The last annual payment of ₹5.00 was flat on the annual payment from10 years ago. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Kirloskar Oil Engines has impressed us by growing EPS at 19% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Kirloskar Oil Engines' prospects of growing its dividend payments in the future.

Our Thoughts On Kirloskar Oil Engines' Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Kirloskar Oil Engines is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Kirloskar Oil Engines has 3 warning signs (and 2 which are a bit concerning) we think you should know about. 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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