ICICI Securities' (NSE:ISEC) Dividend Will Be Reduced To ₹9.25

ICICI Securities Limited (NSE:ISEC) is reducing its dividend from last year's comparable payment to ₹9.25 on the 28th of September. The yield is still above the industry average at 3.1%.

See our latest analysis for ICICI Securities

ICICI Securities' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, ICICI Securities was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 23.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 54%, which is in the range that makes us comfortable with the sustainability of the dividend.

ICICI Securities' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of ₹7.80 in 2018 to the most recent total annual payment of ₹19.00. This means that it has been growing its distributions at 19% per annum over that time. ICICI Securities has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that ICICI Securities has grown earnings per share at 14% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On ICICI Securities' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While ICICI Securities is earning enough to cover the payments, the cash flows are lacking. We don't think ICICI Securities 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. Just as an example, we've come across 2 warning signs for ICICI Securities you should be aware of, and 1 of them makes us a bit uncomfortable. 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.