SKF India (NSE:SKFINDIA) Is Reducing Its Dividend To ₹14.50

SKF India Limited (NSE:SKFINDIA) has announced that on 5th of September, it will be paying a dividend of₹14.50, which a reduction from last year's comparable dividend. This means the annual payment is 2.8% of the current stock price, which is above the average for the industry.

We've discovered 2 warning signs about SKF India. View them for free.

SKF India's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

The next year is set to see EPS grow by 47.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 1.0% which would be quite comfortable going to take the dividend forward.

View our latest analysis for SKF India

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 ₹15.00 in 2015, and the most recent fiscal year payment was ₹130.00. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. SKF India has impressed us by growing EPS at 14% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

SKF India's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. Strong earnings growth means SKF India has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for SKF India 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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