Likhitha Infrastructure (NSE:LIKHITHA) Has Announced A Dividend Of ₹1.50

Likhitha Infrastructure Limited (NSE:LIKHITHA) has announced that it will pay a dividend of ₹1.50 per share on the 24th of October. This means that the annual payment will be 0.3% of the current stock price, which is in line with the average for the industry.

View our latest analysis for Likhitha Infrastructure

Likhitha Infrastructure's Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, Likhitha Infrastructure was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

If the trend of the last few years continues, EPS will grow by 22.6% over the next 12 months. If the dividend continues on this path, the payout ratio could be 7.2% by next year, which we think can be pretty sustainable going forward.

Likhitha Infrastructure Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The annual payment during the last 3 years was ₹0.75 in 2021, and the most recent fiscal year payment was ₹1.50. This means that it has been growing its distributions at 26% per annum over that time. Likhitha Infrastructure 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.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Likhitha Infrastructure has seen EPS rising for the last five years, at 23% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Likhitha Infrastructure has been making. We would probably look elsewhere for an income investment.

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 2 warning signs for Likhitha Infrastructure that investors need to be conscious of moving forward. Is Likhitha Infrastructure not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.