Shanthi Gears' (NSE:SHANTIGEAR) Dividend Will Be Increased To ₹3.00

The board of Shanthi Gears Limited (NSE:SHANTIGEAR) has announced that it will be increasing its dividend by 20% on the 23rd of February to ₹3.00, up from last year's comparable payment of ₹2.50. The payment will take the dividend yield to 0.7%, which is in line with the average for the industry.

Check out our latest analysis for Shanthi Gears

Shanthi Gears' Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, Shanthi Gears' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 20.4% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 38% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹1.00 in 2013, and the most recent fiscal year payment was ₹2.50. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Shanthi Gears has seen EPS rising for the last five years, at 20% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Shanthi Gears' Dividend

Overall, a dividend increase is always good, and we think that Shanthi Gears is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Shanthi Gears that you should be aware of before investing. Is Shanthi Gears not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.