Pilani Investment and Industries' (NSE:PILANIINVS) Dividend Will Be Reduced To ₹15.00

Pilani Investment and Industries Corporation Limited (NSE:PILANIINVS) has announced it will be reducing its dividend payable on the 16th of October to ₹15.00. This means that the annual payment is 0.8% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Pilani Investment and Industries

Pilani Investment and Industries' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Pilani Investment and Industries was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share could rise by 58.2% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 11% by next year, which is in a pretty sustainable range.

Pilani Investment and Industries Is Still Building Its Track Record

It is great to see that Pilani Investment and Industries has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2012, the first annual payment was ₹17.86, compared to the most recent full-year payment of ₹15.00. The dividend has shrunk at around 1.9% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Pilani Investment and Industries has grown earnings per share at 58% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Pilani Investment and Industries' Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Pilani Investment and Industries that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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