Kirloskar Oil Engines (NSE:KIRLOSENG) Will Pay A Dividend Of ₹2.50

Kirloskar Oil Engines Limited (NSE:KIRLOSENG) will pay a dividend of ₹2.50 on the 9th of September. The dividend yield will be 2.4% based on this payment which is still above the industry average.

View our latest analysis for Kirloskar Oil Engines

Kirloskar Oil Engines' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Kirloskar Oil Engines' 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.

Over the next year, EPS is forecast to expand by 22.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 24% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. There hasn't been much of a change in the dividend over the last 10 years. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Kirloskar Oil Engines May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. 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

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. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Kirloskar Oil Engines (of which 2 make us uncomfortable!) 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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