Schaeffler India's (NSE:SCHAEFFLER) Dividend Will Be Increased To ₹26.00

The board of Schaeffler India Limited (NSE:SCHAEFFLER) has announced that it will be paying its dividend of ₹26.00 on the 26th of May, an increased payment from last year's comparable dividend. This will take the annual payment to 0.9% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Schaeffler India

Schaeffler India's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last dividend, Schaeffler India is earning enough to cover the payment, but then it makes up 112% of 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.

Looking forward, earnings per share is forecast to rise by 50.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

Schaeffler India Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was ₹1.00, compared to the most recent full-year payment of ₹26.00. This means that it has been growing its distributions at 39% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Schaeffler India has seen EPS rising for the last five years, at 16% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Schaeffler India is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Schaeffler India that investors should take into consideration. 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.