Cholamandalam Investment and Finance (NSE:CHOLAFIN) Will Pay A Dividend Of ₹0.70

Cholamandalam Investment and Finance Company Limited (NSE:CHOLAFIN) will pay a dividend of ₹0.70 on the 29th of August. This payment means the dividend yield will be 0.1%, which is below the average for the industry.

We've discovered 2 warning signs about Cholamandalam Investment and Finance. View them for free.

Cholamandalam Investment and Finance's Payment Could Potentially Have Solid Earnings Coverage

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. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 88.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 2.3%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Cholamandalam Investment and Finance

Cholamandalam Investment and Finance Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was ₹0.70 in 2015, and the most recent fiscal year payment was ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

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 impressed us by growing EPS at 31% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Cholamandalam Investment and Finance's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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.