Cholamandalam Investment and Finance (NSE:CHOLAFIN) Is Due To Pay A Dividend Of ₹0.70

The board of Cholamandalam Investment and Finance Company Limited (NSE:CHOLAFIN) has announced that it will pay a dividend on the 31st of August, with investors receiving ₹0.70 per share. Including this payment, the dividend yield on the stock will be 0.2%, which is a modest boost for shareholders' returns.

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 Cholamandalam Investment and Finance's stock price has increased by 48% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Cholamandalam Investment and Finance

Cholamandalam Investment and Finance's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Cholamandalam Investment and Finance's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 98.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 3.5% by next year, which is in a pretty sustainable range.

Cholamandalam Investment and Finance Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was ₹0.70, compared to the most recent full-year payment of ₹2.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Cholamandalam Investment and Finance has seen EPS rising for the last five years, at 23% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Cholamandalam Investment and Finance's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Cholamandalam Investment and Finance's payments, as there could be some issues with sustaining them into the future. While Cholamandalam Investment and Finance is earning enough to cover the payments, the cash flows are lacking. We don't think Cholamandalam Investment and Finance is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 2 warning signs for Cholamandalam Investment and Finance that investors should know about before committing capital to this stock. Is Cholamandalam Investment and Finance 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.