IL&FS Investment Managers' (NSE:IVC) Dividend Will Be Increased To ₹0.80

IL&FS Investment Managers Limited (NSE:IVC) will increase its dividend from last year's comparable payment on the 23rd of September to ₹0.80. This takes the dividend yield to 9.8%, which shareholders will be pleased with.

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 IL&FS Investment Managers' stock price has increased by 31% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for IL&FS Investment Managers

IL&FS Investment Managers Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the dividend made up 211% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

If the company can't turn things around, EPS could fall by 4.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 196%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was ₹1.00, compared to the most recent full-year payment of ₹0.80. This works out to be a decline of approximately 2.2% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that IL&FS Investment Managers' earnings per share has fallen at approximately 4.7% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

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

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, this doesn't get us very excited from an income standpoint.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, IL&FS Investment Managers has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about. Is IL&FS Investment Managers not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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