Texmaco Rail & Engineering (NSE:TEXRAIL) Is Paying Out A Larger Dividend Than Last Year

Texmaco Rail & Engineering Limited (NSE:TEXRAIL) will increase its dividend from last year's comparable payment on the 22nd of October to ₹0.75. This makes the dividend yield about the same as the industry average at 0.5%.

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Texmaco Rail & Engineering's Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Texmaco Rail & Engineering is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 36.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 11% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Texmaco Rail & Engineering

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ₹0.25 in 2015, and the most recent fiscal year payment was ₹0.75. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. 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. Texmaco Rail & Engineering has seen EPS rising for the last five years, at 65% 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.

Our Thoughts On Texmaco Rail & Engineering's Dividend

Overall, we always like to see the dividend being raised, but we don't think Texmaco Rail & Engineering will make a great income stock. While Texmaco Rail & Engineering is earning enough to cover the payments, the cash flows are lacking. We don't think Texmaco Rail & Engineering is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. 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. 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.