UTI Asset Management's (NSE:UTIAMC) Dividend Will Be Increased To ₹22.00

The board of UTI Asset Management Company Limited (NSE:UTIAMC) has announced that it will be paying its dividend of ₹22.00 on the 28th of July, an increased payment from last year's comparable dividend. This makes the dividend yield 2.7%, which is above the industry average.

Check out our latest analysis for UTI Asset Management

UTI Asset Management's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, UTI Asset Management is earning enough to cover the payment, but then it makes up 98% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next year is set to see EPS grow by 48.3%. If the dividend continues on this path, the payout ratio could be 59% by next year, which we think can be pretty sustainable going forward.

UTI Asset Management Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2021, the dividend has gone from ₹17.00 total annually to ₹22.00. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. UTI Asset Management has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 3.7% per year. Growth of 3.7% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think UTI Asset Management's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for UTI Asset Management that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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