Asian Paints' (NSE:ASIANPAINT) Dividend Will Be Increased To ₹21.25

Asian Paints Limited (NSE:ASIANPAINT) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of July to ₹21.25. The payment will take the dividend yield to 0.8%, which is in line with the average for the industry.

View our latest analysis for Asian Paints

Asian Paints' Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Asian Paints was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 84% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share is forecast to rise by 58.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable range.

Asian Paints Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was ₹4.00, compared to the most recent full-year payment of ₹25.65. This means that it has been growing its distributions at 20% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

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. Asian Paints has seen EPS rising for the last five years, at 16% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payments look okay by most measures, the lack of cash flow could definitely cause problems for them in the future. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 37 Asian Paints analysts we track are forecasting continued growth with our free report on analyst estimates for the company. 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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