Agarwal Industrial's (NSE:AGARIND) Upcoming Dividend Will Be Larger Than Last Year's

The board of Agarwal Industrial Corporation Limited (NSE:AGARIND) has announced that it will be paying its dividend of ₹3.30 on the 22nd of October, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 0.4% is only a modest boost to shareholder returns.

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Agarwal Industrial's Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Agarwal Industrial was earning enough to cover the dividend, but free cash flows weren't positive. 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.

If the trend of the last few years continues, EPS will grow by 21.7% over the next 12 months. If the dividend continues on this path, the payout ratio could be 4.9% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Agarwal Industrial

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was ₹1.40, compared to the most recent full-year payment of ₹3.30. This implies that the company grew its distributions at a yearly rate of about 9.0% 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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Agarwal Industrial has impressed us by growing EPS at 22% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Agarwal Industrial's Dividend

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 would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Agarwal Industrial that investors should take into consideration. 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.