Peria Karamalai Tea and Produce's (NSE:PKTEA) Dividend Will Be Increased To ₹1.00

The Peria Karamalai Tea and Produce Company Limited (NSE:PKTEA) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of October to ₹1.00. Although the dividend is now higher, the yield is only 0.2%, which is below 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 Peria Karamalai Tea and Produce's stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Peria Karamalai Tea and Produce

Peria Karamalai Tea and Produce's Projected Earnings Seem Likely To Cover Future Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Peria Karamalai Tea and Produce's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 4.5% if recent trends continue. If the dividend continues on this path, the payout ratio could be 4.9% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ₹1.50 in 2014, and the most recent fiscal year payment was ₹1.00. Doing the maths, this is a decline of about 4.0% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been crawling upwards at 4.5% per year. While growth may be thin on the ground, Peria Karamalai Tea and Produce could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Peria Karamalai Tea and Produce's Dividend

Overall, we always like to see the dividend being raised, but we don't think Peria Karamalai Tea and Produce will make a great income stock. While Peria Karamalai Tea and Produce is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

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. Just as an example, we've come across 5 warning signs for Peria Karamalai Tea and Produce you should be aware of, and 2 of them are potentially serious. Is Peria Karamalai Tea and Produce 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.