Krsnaa Diagnostics' (NSE:KRSNAA) Dividend Is Being Reduced To ₹2.50

Krsnaa Diagnostics Limited (NSE:KRSNAA) has announced that on 21st of October, it will be paying a dividend of₹2.50, which a reduction from last year's comparable dividend. However, the dividend yield of 0.3% still remains in a typical range for the industry.

Check out our latest analysis for Krsnaa Diagnostics

Krsnaa Diagnostics' Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Krsnaa Diagnostics was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 173.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 4.9% by next year, which is in a pretty sustainable range.

Krsnaa Diagnostics 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 most recent annual payment of ₹2.50 is about the same as the annual payment 2 years ago. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. It's not great to see that Krsnaa Diagnostics' earnings per share has fallen at approximately 8.8% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Krsnaa Diagnostics is earning enough to cover the payments, the cash flows are lacking. We don't think Krsnaa Diagnostics is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Krsnaa Diagnostics that investors should know about before committing capital to this stock. Is Krsnaa Diagnostics not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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