Life Insurance Corporation of India (NSE:LICI) Is Increasing Its Dividend To ₹12.00

Life Insurance Corporation of India (NSE:LICI) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of September to ₹12.00. This will take the annual payment to 1.3% of the stock price, which is above what most companies in the industry pay.

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Life Insurance Corporation of India's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Life Insurance Corporation of India 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 36.8%. If the dividend continues on this path, the payout ratio could be 10.0% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Life Insurance Corporation of India

Life Insurance Corporation of India Doesn't Have A Long Payment History

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 dividend has gone from an annual total of ₹1.50 in 2022 to the most recent total annual payment of ₹12.00. This means that it has been growing its distributions at 100% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Life Insurance Corporation of India has been growing its earnings per share at 16% a year over the past five years. Life Insurance Corporation of India definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Life Insurance Corporation of India's Dividend

Overall, we always like to see the dividend being raised, but we don't think Life Insurance Corporation of India will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Life Insurance Corporation of India (2 are significant!) that you should be aware of before investing. 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.