New India Assurance (NSE:NIACL) Is Increasing Its Dividend To ₹2.06

The New India Assurance Company Limited (NSE:NIACL) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of January to ₹2.06. This will take the dividend yield to an attractive 0.9%, providing a nice boost to shareholder returns.

View our latest analysis for New India Assurance

New India Assurance's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, New India Assurance's earnings easily covered the dividend, but free cash flows were negative. 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 29.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.

New India Assurance's Dividend Has Lacked Consistency

New India Assurance 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. Since 2017, the dividend has gone from ₹3.75 total annually to ₹2.06. The dividend has shrunk at around 8.2% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. It's encouraging to see that New India Assurance has been growing its earnings per share at 34% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On New India Assurance's Dividend

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

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. As an example, we've identified 2 warning signs for New India Assurance that you should be aware of before investing. 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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