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

The board of IL&FS Investment Managers Limited (NSE:IVC) has announced it will be reducing its dividend by 13% from last year's payment of ₹0.80 on the 29th of September, with shareholders receiving ₹0.70. However, the dividend yield of 6.9% is still a decent boost to shareholder returns.

See our latest analysis for IL&FS Investment Managers

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

EPS is set to grow by 54.7% over the next year if recent trends continue. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 123% over the next year.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ₹1.00 in 2014 to the most recent total annual 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.

IL&FS Investment Managers Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that IL&FS Investment Managers has grown earnings per share 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

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

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. For example, we've identified 3 warning signs for IL&FS Investment Managers (2 are potentially serious!) that you should be aware of before investing. 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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