SKF India's (NSE:SKFINDIA) Shareholders Will Receive A Smaller Dividend Than Last Year

SKF India Limited (NSE:SKFINDIA) is reducing its dividend to ₹14.50 on the 22nd of August. This means that the dividend yield is 0.5%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for SKF India

SKF India's Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, SKF India was easily earning enough to 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 9.2% over the next 12 months. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was ₹6.00 in 2011, and the most recent fiscal year payment was ₹14.50. This works out to be a compound annual growth rate (CAGR) of approximately 9.2% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

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. SKF India has impressed us by growing EPS at 9.2% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like SKF India's Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like SKF India does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for SKF India that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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