Agarwal Industrial's (NSE:AGARIND) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Agarwal Industrial Corporation Limited (NSE:AGARIND) has announced that it will be paying its dividend of ₹2.00 on the 30th of October, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 0.3%.

Check out our latest analysis for Agarwal Industrial

Agarwal Industrial's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Agarwal Industrial's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 35.4% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 3.1% by next year, which is in a pretty sustainable range.

Agarwal Industrial's Dividend Has Lacked Consistency

Agarwal Industrial has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2013, the annual payment back then was ₹1.20, compared to the most recent full-year payment of ₹2.00. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Agarwal Industrial has impressed us by growing EPS at 35% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

An additional note is that the company has been raising capital by issuing stock equal to 16% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Agarwal Industrial's payments are rock solid. While Agarwal Industrial is earning enough to cover the payments, the cash flows are lacking. We don't think Agarwal Industrial is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 Agarwal Industrial 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.