CSL Finance's (NSE:CSLFINANCE) Upcoming Dividend Will Be Larger Than Last Year's

CSL Finance Limited (NSE:CSLFINANCE) has announced that it will be increasing its dividend from last year's comparable payment on the 20th of October to ₹3.00. Despite this raise, the dividend yield of 1.0% is only a modest boost to shareholder returns.

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CSL Finance's Future Dividend Projections Appear Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. CSL Finance is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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.

If the trend of the last few years continues, EPS will grow by 21.5% over the next 12 months. If the dividend continues on this path, the payout ratio could be 9.2% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for CSL Finance

CSL Finance Doesn't Have A Long Payment History

CSL Finance'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 2017, the annual payment back then was ₹0.333, compared to the most recent full-year payment of ₹3.00. This means that it has been growing its distributions at 32% per annum over that time. CSL Finance has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. CSL Finance has seen EPS rising for the last five years, at 22% per annum. 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.

Our Thoughts On CSL Finance's Dividend

In summary, while it's always good to see the dividend being raised, we don't think CSL Finance's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for CSL Finance you should be aware of, and 1 of them can't be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield 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.