Shanthi Gears (NSE:SHANTIGEAR) Has Affirmed Its Dividend Of ₹3.00

Shanthi Gears Limited (NSE:SHANTIGEAR) has announced that it will pay a dividend of ₹3.00 per share on the 23rd of February. The dividend yield will be 1.1% based on this payment which is still above the industry average.

Check out our latest analysis for Shanthi Gears

Shanthi Gears' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite comfortably covered by Shanthi Gears' earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 80% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 21.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 51% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from ₹0.60 total annually to ₹6.00. This means that it has been growing its distributions at 26% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

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 Shanthi Gears has been growing its earnings per share at 17% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Shanthi Gears' payments, as there could be some issues with sustaining them into the future. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Shanthi Gears has been making. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Shanthi Gears that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.