Nippon Life India Asset Management (NSE:NAM-INDIA) Will Pay A Dividend Of ₹9.00

The board of Nippon Life India Asset Management Limited (NSE:NAM-INDIA) has announced that it will pay a dividend on the 29th of November, with investors receiving ₹9.00 per share. This will take the dividend yield to an attractive 2.1%, providing a nice boost to shareholder returns.

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Nippon Life India Asset Management's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Nippon Life India Asset Management's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 152% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

The next year is set to see EPS grow by 51.2%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 70% which brings it into quite a comfortable range.

View our latest analysis for Nippon Life India Asset Management

Nippon Life India Asset Management's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 8 years was ₹5.00 in 2017, and the most recent fiscal year payment was ₹18.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. Nippon Life India Asset Management 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.

Nippon Life India Asset Management Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Nippon Life India Asset Management has impressed us by growing EPS at 23% per year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Nippon Life India Asset Management's payments are rock solid. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Nippon Life India Asset Management that investors should take into consideration. Is Nippon Life India Asset Management not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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