Carborundum Universal (NSE:CARBORUNIV) Has Announced A 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. The dividend yield is 0.4% based on this payment, which is a little bit low compared to the other companies in the industry.

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Carborundum Universal's Future Dividend Projections Appear Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Carborundum Universal was paying a whopping 286% as a dividend, but this only made up 26% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

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.

View our latest analysis for Carborundum Universal

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. 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. Carborundum Universal has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend's Growth Prospects Are Limited

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. However, Carborundum Universal's EPS was effectively flat over the past five years, which could stop the company from paying more every year. While EPS growth is quite low, Carborundum Universal has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Carborundum Universal's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Carborundum Universal is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Carborundum Universal 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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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.