CARE Ratings (NSE:CARERATING) Has Announced That It Will Be Increasing Its Dividend To ₹6.00

CARE Ratings Limited's (NSE:CARERATING) dividend will be increasing to ₹6.00 on 13th of October. This will take the annual payment to 2.6% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for CARE Ratings

CARE Ratings' Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. CARE Ratings 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 90% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share is forecast to rise by 3.2% over the next year. If the dividend continues on this path, the payout ratio could be 53% by next year, which we think can be pretty sustainable going forward.

CARE Ratings' Dividend Has Lacked Consistency

It's comforting to see that CARE Ratings has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2013, the first annual payment was ₹12.00, compared to the most recent full-year payment of ₹25.00. This means that it has been growing its distributions at 9.6% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Come By

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. CARE Ratings has seen earnings per share falling at 5.5% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On CARE Ratings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think CARE Ratings' payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments CARE Ratings has been making. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for CARE Ratings that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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