Shakti Pumps (India) (NSE:SHAKTIPUMP) Has Announced That Its Dividend Will Be Reduced To ₹2.00

Shakti Pumps (India) Limited (NSE:SHAKTIPUMP) is reducing its dividend from last year's comparable payment to ₹2.00 on the 29th of October. This means that the annual payment is 0.4% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for Shakti Pumps (India)

Shakti Pumps (India)'s Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Shakti Pumps (India) was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share could rise by 22.8% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 5.1% 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. Since 2012, the annual payment back then was ₹1.00, compared to the most recent full-year payment of ₹2.00. This means that it has been growing its distributions at 7.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

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. It's encouraging to see that Shakti Pumps (India) has been growing its earnings per share at 23% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Shakti Pumps (India)'s Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 2 warning signs for Shakti Pumps (India) that investors should know about before committing capital to this stock. Is Shakti Pumps (India) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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