Narayana Hrudayalaya (NSE:NH) Will Pay A Larger Dividend Than Last Year At ₹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. Although the dividend is now higher, the yield is only 0.2%, which is below the industry average.

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Narayana Hrudayalaya's Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. 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.

Over the next year, EPS is forecast to expand by 48.4%. If the dividend continues on this path, the payout ratio could be 11% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Narayana Hrudayalaya

Narayana Hrudayalaya's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the annual payment back then was ₹1.00, compared to the most recent full-year payment of ₹4.50. This implies that the company grew its distributions at a yearly rate of about 28% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Narayana Hrudayalaya has seen EPS rising for the last five years, at 46% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Narayana Hrudayalaya will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. If you are a dividend investor, you might also want to look at our curated list of high yield 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.