Schaeffler India's (NSE:SCHAEFFLER) Shareholders Will Receive A Bigger Dividend Than Last Year

Schaeffler India Limited (NSE:SCHAEFFLER) will increase its dividend from last year's comparable payment on the 30th of May to ₹28.00. This makes the dividend yield 0.9%, which is above the industry average.

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Schaeffler India's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 457% 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 58.5% over the next year. 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.

Check out our latest analysis for Schaeffler India

Schaeffler India Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the dividend has gone from ₹1.50 total annually to ₹28.00. This works out to be a compound annual growth rate (CAGR) of approximately 34% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Schaeffler India has impressed us by growing EPS at 21% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Schaeffler India could prove to be a strong dividend payer.

Our Thoughts On Schaeffler India's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Schaeffler India's payments are rock solid. While Schaeffler India is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Schaeffler India (of which 1 is significant!) you should know about. 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.