Carborundum Universal (NSE:CARBORUNIV) Has Announced A Dividend Of ₹2.50

The board of Carborundum Universal Limited (NSE:CARBORUNIV) has announced that it will pay a dividend of ₹2.50 per share on the 26th of August. This means the annual payment will be 0.4% of the current stock price, which is lower than the industry average.

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

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Carborundum Universal's dividend was only 26% of earnings, however it was paying out 286% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 135.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.

View 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 means that it has been growing its distributions at 12% per annum over that time. 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.

Dividend Growth May Be Hard To Achieve

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 growth may be thin on the ground, Carborundum Universal could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

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. While Carborundum Universal is earning enough to cover the payments, the cash flows are lacking. 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. As an example, we've identified 2 warning signs for Carborundum Universal that you should be aware of before investing. 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.