Texmaco Rail & Engineering (NSE:TEXRAIL) Has Announced That It Will Be Increasing Its Dividend To ₹0.50

Texmaco Rail & Engineering Limited's (NSE:TEXRAIL) dividend will be increasing from last year's payment of the same period to ₹0.50 on 25th of October. Despite this raise, the dividend yield of 0.2% is only a modest boost to shareholder returns.

See our latest analysis for Texmaco Rail & Engineering

Texmaco Rail & Engineering's Future Dividend Projections Appear Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Texmaco Rail & Engineering's dividend was only 15% of earnings, however it was paying out 146% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 97.7%. If the dividend continues on this path, the payout ratio could be 6.8% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ₹0.25 in 2014, and the most recent fiscal year payment was ₹0.50. 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.

Texmaco Rail & Engineering May Find It Hard To Grow The Dividend

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. However, Texmaco Rail & Engineering's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

We should note that Texmaco Rail & Engineering has issued stock equal to 24% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Texmaco Rail & Engineering is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Texmaco Rail & Engineering that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.