Lakshmi Machine Works (NSE:LAXMIMACH) Is Increasing Its Dividend To ₹40.00

Lakshmi Machine Works Limited (NSE:LAXMIMACH) has announced that it will be increasing its dividend on the 10th of August to ₹40.00. Even though the dividend went up, the yield is still quite low at only 0.4%.

View our latest analysis for Lakshmi Machine Works

Lakshmi Machine Works' Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Lakshmi Machine Works' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 65.0%. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.

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 ₹25.00 in 2012, and the most recent fiscal year payment was ₹40.00. This implies that the company grew its distributions at a yearly rate of about 4.8% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Achieve

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. Lakshmi Machine Works hasn't seen much change in its earnings per share over the last five years. While growth may be thin on the ground, Lakshmi Machine Works could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Lakshmi Machine Works' Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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 Lakshmi Machine Works that investors should know about before committing capital to this stock. Is Lakshmi Machine Works not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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