IL&FS Investment Managers' (NSE:IVC) Dividend Is Being Reduced To ₹0.70

IL&FS Investment Managers Limited's (NSE:IVC) dividend is being reduced from last year's payment covering the same period to ₹0.70 on the 12th of September. The dividend yield of 5.4% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for IL&FS Investment Managers

IL&FS Investment Managers Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the dividend made up 219% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS could expand by 54.7% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 127%, which probably can't continue without starting to put some pressure on the balance sheet.

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 ₹1.30 in 2014, and the most recent fiscal year payment was ₹0.70. The dividend has shrunk at around 6.0% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. IL&FS Investment Managers has impressed us by growing EPS at 55% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

IL&FS Investment Managers' Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for IL&FS Investment Managers (1 can't be ignored!) that you should be aware of before investing. 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.

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