Central Depository Services (India) (NSE:CDSL) Has Announced That It Will Be Increasing Its Dividend To ₹16.00

Central Depository Services (India) Limited (NSE:CDSL) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of October to ₹16.00. This takes the annual payment to 1.4% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Central Depository Services (India)

Central Depository Services (India)'s Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last dividend, Central Depository Services (India) is earning enough to cover the payment, but then it makes up 415% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 72.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 42% by next year, which is in a pretty sustainable range.

Central Depository Services (India) Is Still Building Its Track Record

Central Depository Services (India)'s dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2018, the annual payment back then was ₹3.50, compared to the most recent full-year payment of ₹16.00. This works out to be a compound annual growth rate (CAGR) of approximately 36% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Central Depository Services (India) has impressed us by growing EPS at 24% per year over the past five years. Central Depository Services (India) is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On Central Depository Services (India)'s Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Central Depository Services (India) that you should be aware of before investing. Is Central Depository Services (India) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.