Vesuvius India's (NSE:VESUVIUS) Shareholders Will Receive A Bigger Dividend Than Last Year

Vesuvius India Limited (NSE:VESUVIUS) has announced that it will be increasing its dividend on the 5th of June to ₹8.00. This takes the dividend yield to 0.8%, which shareholders will be pleased with.

View our latest analysis for Vesuvius India

Vesuvius India's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Vesuvius India's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

EPS is set to fall by 5.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 26%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Vesuvius India Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the first annual payment was ₹4.25, compared to the most recent full-year payment of ₹8.00. This implies that the company grew its distributions at a yearly rate of about 6.5% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Vesuvius India's EPS has declined at around 5.2% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Vesuvius India's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Vesuvius India's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Vesuvius India (2 shouldn't be ignored!) that you should be aware of before investing. 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.