Nitin Spinners (NSE:NITINSPIN) Is Increasing Its Dividend To ₹2.50

Nitin Spinners Limited (NSE:NITINSPIN) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of October to ₹2.50. This makes the dividend yield 2.3%, which is above the industry average.

View our latest analysis for Nitin Spinners

Nitin Spinners' Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Nitin Spinners was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share could rise by 36.3% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 5.9% by next year, which is in a pretty sustainable range.

Nitin Spinners' Dividend Has Lacked Consistency

It's comforting to see that Nitin Spinners has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of ₹0.75 in 2014 to the most recent total annual payment of ₹5.00. This means that it has been growing its distributions at 27% 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Nitin Spinners has grown earnings per share at 36% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Nitin Spinners Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Nitin Spinners is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. Taking the debate a bit further, we've identified 2 warning signs for Nitin Spinners that investors need to be conscious of moving forward. Is Nitin Spinners not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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