Shalby (NSE:SHALBY) Is Due To Pay A Dividend Of ₹1.00

Shalby Limited (NSE:SHALBY) has announced that it will pay a dividend of ₹1.00 per share on the 26th of October. This makes the dividend yield 0.8%, which will augment investor returns quite nicely.

View our latest analysis for Shalby

Shalby's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Shalby 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.

The next year is set to see EPS grow by 38.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 14%, which is in the range that makes us comfortable with the sustainability of the dividend.

Shalby Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of ₹0.50 in 2019 to the most recent total annual payment of ₹1.00. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

We Could See Shalby's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Shalby has impressed us by growing EPS at 8.2% per year over the past five years. Shalby definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Shalby's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Shalby is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 Shalby that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.