ICICI Prudential Life Insurance's (NSE:ICICIPRULI) Dividend Will Be Increased To ₹0.85

ICICI Prudential Life Insurance Company Limited's (NSE:ICICIPRULI) dividend will be increasing from last year's payment of the same period to ₹0.85 on 27th of July. Even though the dividend went up, the yield is still quite low at only 0.1%.

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ICICI Prudential Life Insurance's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. ICICI Prudential Life Insurance is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 41.2%. If the dividend continues on this path, the payout ratio could be 6.0% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for ICICI Prudential Life Insurance

ICICI Prudential Life Insurance's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 9 years was ₹2.20 in 2016, and the most recent fiscal year payment was ₹0.85. This works out to a decline of approximately 61% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. ICICI Prudential Life Insurance hasn't seen much change in its earnings per share over the last five years. While EPS growth is quite low, ICICI Prudential Life Insurance has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, we always like to see the dividend being raised, but we don't think ICICI Prudential Life Insurance 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for ICICI Prudential Life Insurance that investors need to be conscious of moving forward. 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.