Narayana Hrudayalaya (NSE:NH) Has Announced That It Will Be Increasing Its Dividend To ₹4.50

The board of Narayana Hrudayalaya Limited (NSE:NH) has announced that it will be paying its dividend of ₹4.50 on the 28th of September, an increased payment from last year's comparable dividend. This takes the annual payment to 0.3% of the current stock price, which is about average for the industry.

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Narayana Hrudayalaya's Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Narayana Hrudayalaya is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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.

Looking forward, earnings per share is forecast to rise by 52.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 11% by next year, which is in a pretty sustainable range.

View our latest analysis for Narayana Hrudayalaya

Narayana Hrudayalaya's Dividend Has Lacked Consistency

Narayana Hrudayalaya has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of ₹1.00 in 2019 to the most recent total annual payment of ₹4.50. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Narayana Hrudayalaya has grown earnings per share at 46% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Narayana Hrudayalaya that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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