ITC's (NSE:ITC) Dividend Will Be Increased To ₹9.50

The board of ITC Limited (NSE:ITC) has announced that the dividend on 17th of June will be increased to ₹9.50, which will be 52% higher than last year's payment of ₹6.25 which covered the same period. Even though the dividend went up, the yield is still quite low at only 2.9%.

View our latest analysis for ITC

ITC's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, ITC was paying out 82% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

EPS is set to grow by 31.9% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 87% - on the higher side, but we wouldn't necessarily say this is unsustainable.

ITC Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ₹3.00 in 2013, and the most recent fiscal year payment was ₹12.25. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that ITC has grown earnings per share at 11% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On ITC's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for ITC that investors should take into consideration. Is ITC 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.