Why Paisalo Digital Limited (NSE:PAISALO) Is A Top Dividend Stock

Is Paisalo Digital Limited (NSE:PAISALO) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

A 0.3% yield is nothing to get excited about, but investors probably think the long payment history suggests Paisalo Digital has some staying power. The company also returned around 3.2% of its market capitalisation to shareholders in the form of stock buybacks over the past year. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Explore this interactive chart for our latest analysis on Paisalo Digital!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 7.6% of Paisalo Digital's profits were paid out as dividends in the last 12 months. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.

Consider getting our latest analysis on Paisalo Digital's financial position here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Paisalo Digital has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past 10-year period, the first annual payment was ₹0.3 in 2010, compared to ₹1.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time.

Dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Paisalo Digital has grown its earnings per share at 3.9% per annum over the past five years. So, we know earnings growth has been thin on the ground. However, the payout ratio is low, and some companies can deliver adequate dividend performance simply by increasing the payout ratio.

Conclusion

To summarise, shareholders should always check that Paisalo Digital's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're glad to see Paisalo Digital has a low payout ratio, as this suggests earnings are being reinvested in the business. Earnings per share growth has been slow, but we respect a company that maintains a relatively stable dividend. Paisalo Digital has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Paisalo Digital that you should be aware of before investing.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. 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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