Indian Railway Catering & Tourism's (NSE:IRCTC) Shareholders Will Receive A Bigger Dividend Than Last Year

Indian Railway Catering & Tourism Corporation Limited (NSE:IRCTC) will increase its dividend from last year's comparable payment on the 29th of September to ₹4.00. This will take the annual payment to 0.7% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Indian Railway Catering & Tourism

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. 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. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Over the next year, EPS is forecast to expand by 73.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, 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 company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The dividend has gone from an annual total of ₹2.00 in 2020 to the most recent total annual payment of ₹6.50. This means that it has been growing its distributions at 34% per annum over that time. 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

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 29% per year over the past five years. Indian Railway Catering & Tourism is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Indian Railway Catering & Tourism will make a great income stock. 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 would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Indian Railway Catering & Tourism you should be aware of, and 1 of them is a bit concerning. 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.

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