Monte Carlo Fashions (NSE:MONTECARLO) Is Increasing Its Dividend To ₹20.00

Monte Carlo Fashions Limited (NSE:MONTECARLO) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of October to ₹20.00. This makes the dividend yield 2.4%, which is above the industry average.

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 Monte Carlo Fashions' stock price has increased by 36% 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 Monte Carlo Fashions

Monte Carlo Fashions' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, based ont he last payment, Monte Carlo Fashions was earning enough to cover the dividend pretty comfortably. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Looking forward, earnings per share could rise by 23.3% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.

Monte Carlo Fashions' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 7 years was ₹10.00 in 2015, and the most recent fiscal year payment was ₹20.00. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Monte Carlo Fashions has seen EPS rising for the last five years, at 23% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Monte Carlo Fashions' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Monte Carlo Fashions' payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Monte Carlo Fashions has been making. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Monte Carlo Fashions that investors should know about before committing capital to this stock. Is Monte Carlo Fashions not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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