Indian Railway Catering & Tourism (NSE:IRCTC) Is Increasing Its Dividend To ₹2.00

Indian Railway Catering & Tourism Corporation Limited (NSE:IRCTC) will increase its dividend from last year's comparable payment on the 24th of September to ₹2.00. The payment will take the dividend yield to 0.9%, which is in line with the average for the industry.

View our latest analysis for Indian Railway Catering & Tourism

Indian Railway Catering & Tourism's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Indian Railway Catering & Tourism was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Looking forward, earnings per share is forecast to rise by 34.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which is in the range that makes us comfortable with the sustainability of the dividend.

Indian Railway Catering & Tourism's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The annual payment during the last 3 years was ₹2.00 in 2020, and the most recent fiscal year payment was ₹5.50. This implies that the company grew its distributions at a yearly rate of about 40% over that duration. Indian Railway Catering & Tourism has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Indian Railway Catering & Tourism has grown earnings per share at 35% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Indian Railway Catering & Tourism could prove to be a strong dividend payer.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Indian Railway Catering & Tourism has been making. We don't think Indian Railway Catering & Tourism is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Indian Railway Catering & Tourism (1 shouldn't be ignored!) that you should be aware of before investing. Is Indian Railway Catering & Tourism not quite the opportunity you were looking for? Why not check out our selection of top 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.