Monte Carlo Fashions (NSE:MONTECARLO) Is Increasing Its Dividend To ₹15.00

Monte Carlo Fashions Limited (NSE:MONTECARLO) has announced that it will be increasing its dividend on the 24th of October to ₹15.00. This makes the dividend yield 8.0%, which is above the industry average.

View our latest analysis for Monte Carlo Fashions

Monte Carlo Fashions' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Monte Carlo Fashions' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

EPS is set to grow by 4.2% over the next year if recent trends continue. If recent patterns in the dividend continue, the payout ratio in 12 months could be 87% which is a bit high but can definitely be sustainable.

Monte Carlo Fashions' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 6 years was ₹10.00 in 2015, and the most recent fiscal year payment was ₹15.00. This means that it has been growing its distributions at 7.0% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 4.2% per annum over the last five years, which admittedly is a bit slow. Monte Carlo Fashions is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Monte Carlo Fashions' Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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. For example, we've picked out 1 warning sign for Monte Carlo Fashions that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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