Kitex Garments' (NSE:KITEX) Dividend Will Be ₹1.50

Kitex Garments Limited (NSE:KITEX) has announced that it will pay a dividend of ₹1.50 per share on the 28th of October. This payment means the dividend yield will be 0.3%, which is below the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Kitex Garments' stock price has increased by 155% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Kitex Garments

Kitex Garments' Projected Earnings Seem Likely To Cover Future Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Kitex Garments' 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.

Looking forward, EPS could fall by 0.07% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 14%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Kitex Garments Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was ₹0.714, compared to the most recent full-year payment of ₹1.50. This means that it has been growing its distributions at 7.7% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. However, Kitex Garments' EPS was effectively flat over the past five years, which could stop the company from paying more every year.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kitex Garments' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. Case in point: We've spotted 4 warning signs for Kitex Garments (of which 3 shouldn't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.