Kewal Kiran Clothing (NSE:KKCL) Is Reducing Its Dividend To ₹2.00

Kewal Kiran Clothing Limited (NSE:KKCL) has announced that on 27th of May, it will be paying a dividend of₹2.00, which a reduction from last year's comparable dividend. However, the dividend yield of 2.6% is still a decent boost to shareholder returns.

View our latest analysis for Kewal Kiran Clothing

Kewal Kiran Clothing's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Kewal Kiran Clothing was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 88% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 55.4%. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹3.40 in 2013, and the most recent fiscal year payment was ₹12.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Kewal Kiran Clothing Could Grow Its Dividend

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. It's encouraging to see that Kewal Kiran Clothing has been growing its earnings per share at 8.9% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Our Thoughts On Kewal Kiran Clothing's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Kewal Kiran Clothing has been making. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Kewal Kiran Clothing that investors should know about before committing capital to this stock. 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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