Carborundum Universal (NSE:CARBORUNIV) Has Affirmed Its Dividend Of ₹2.50

Carborundum Universal Limited's (NSE:CARBORUNIV) investors are due to receive a payment of ₹2.50 per share on 26th of August. Including this payment, the dividend yield on the stock will be 0.4%, which is a modest boost for shareholders' returns.

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Carborundum Universal's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Carborundum Universal's dividend was only 26% of earnings, however it was paying out 286% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, earnings per share is forecast to rise by 135.1% over the next year. If the dividend continues on this path, the payout ratio could be 12% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Carborundum Universal

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹1.25 in 2015, and the most recent fiscal year payment was ₹4.00. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend's Growth Prospects Are Limited

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. Unfortunately, Carborundum Universal's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While growth may be thin on the ground, Carborundum Universal could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Carborundum Universal's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Carborundum Universal's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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 picked out 2 warning signs for Carborundum Universal 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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