Schaeffler India (NSE:SCHAEFFLER) Is Increasing Its Dividend To ₹28.00

Schaeffler India Limited (NSE:SCHAEFFLER) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of May to ₹28.00. This will take the annual payment to 0.8% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Schaeffler India

Schaeffler India's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Schaeffler India's dividend was only 47% of earnings, however it was paying out 457% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

The next year is set to see EPS grow by 58.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

Schaeffler India Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was ₹1.20, compared to the most recent full-year payment of ₹28.00. This works out to be a compound annual growth rate (CAGR) of approximately 37% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Schaeffler India has been growing its earnings per share at 21% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Our Thoughts On Schaeffler India's Dividend

Overall, we always like to see the dividend being raised, but we don't think Schaeffler India will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Schaeffler India is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Schaeffler India you should be aware of, and 1 of them makes us a bit uncomfortable. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.