UTI Asset Management's (NSE:UTIAMC) Dividend Will Be Increased To ₹48.00

UTI Asset Management Company Limited (NSE:UTIAMC) will increase its dividend from last year's comparable payment on the 7th of August to ₹48.00. This makes the dividend yield 3.4%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that UTI Asset Management's stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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UTI Asset Management's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, UTI Asset Management's dividend was only 45% of earnings, however it was paying out 132% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

EPS is set to grow by 38.8% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 76% which is a bit high but can definitely be sustainable.

See our latest analysis for UTI Asset Management

UTI Asset Management Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The annual payment during the last 4 years was ₹17.00 in 2021, and the most recent fiscal year payment was ₹48.00. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. UTI Asset Management has impressed us by growing EPS at 22% per year over the past five years. UTI Asset Management is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On UTI Asset Management's Dividend

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. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.