KNR Constructions (NSE:KNRCON) Will Pay A Dividend Of ₹0.25

The board of KNR Constructions Limited (NSE:KNRCON) has announced that it will pay a dividend of ₹0.25 per share on the 25th of October. The dividend yield is 0.1% based on this payment, which is a little bit low compared to the other companies in the industry.

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KNR Constructions' Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, KNR Constructions' 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 fall by 60.3% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 2.0%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Check out our latest analysis for KNR Constructions

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. Since 2015, the dividend has gone from ₹0.10 total annually to ₹0.25. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that KNR Constructions has grown earnings per share at 29% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On KNR Constructions' Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think KNR Constructions is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for KNR Constructions that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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