Edelweiss Financial Services' (NSE:EDELWEISS) Dividend Will Be Increased To ₹1.50

Edelweiss Financial Services Limited's (NSE:EDELWEISS) dividend will be increasing from last year's payment of the same period to ₹1.50 on 27th of October. Based on this payment, the dividend yield for the company will be 1.4%, which is fairly typical for the industry.

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 Edelweiss Financial Services' stock price has increased by 42% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Edelweiss Financial Services

Edelweiss Financial Services' Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. However, Edelweiss Financial Services' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Unless the company can turn things around, EPS could fall by 14.2% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 40%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ₹0.65 in 2014, and the most recent fiscal year payment was ₹1.50. This means that it has been growing its distributions at 8.7% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Edelweiss Financial Services' EPS has declined at around 14% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Edelweiss Financial Services' payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Edelweiss Financial Services (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.