Krsnaa Diagnostics (NSE:KRSNAA) Has Announced That Its Dividend Will Be 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.

See our latest analysis for Krsnaa Diagnostics

Krsnaa Diagnostics' Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Krsnaa Diagnostics' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 173.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 4.9%, which is in the range that makes us comfortable with the sustainability of the dividend.

Krsnaa Diagnostics Is Still Building Its Track Record

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 Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. 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. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Krsnaa Diagnostics' Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. 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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