Lakshmi Machine Works (NSE:LAXMIMACH) Is Paying Out Less In Dividends Than Last Year

Lakshmi Machine Works Limited (NSE:LAXMIMACH) has announced that on 30th of August, it will be paying a dividend of₹75.00, which a reduction from last year's comparable dividend. This payment takes the dividend yield to 0.5%, which only provides a modest boost to overall returns.

View our latest analysis for Lakshmi Machine Works

Lakshmi Machine Works' Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Lakshmi Machine Works is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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 48.7%. If the dividend continues on this path, the payout ratio could be 16% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from ₹30.00 total annually to ₹75.00. This implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Lakshmi Machine Works might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Lakshmi Machine Works has seen EPS rising for the last five years, at 15% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Lakshmi Machine Works' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Lakshmi Machine Works has 2 warning signs (and 1 which is concerning) we think you should know about. 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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