Carborundum Universal (NSE:CARBORUNIV) Is Increasing Its Dividend To ₹2.00

The board of Carborundum Universal Limited (NSE:CARBORUNIV) has announced that it will be increasing its dividend on the 25th of August to ₹2.00. Even though the dividend went up, the yield is still quite low at only 0.5%.

View our latest analysis for Carborundum Universal

Carborundum Universal's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Carborundum Universal's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 26.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 2012, the dividend has gone from ₹1.00 to ₹4.00. This means that it has been growing its distributions at 15% per annum over that time. 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 Looks Likely To Grow

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. Carborundum Universal has seen EPS rising for the last five years, at 14% per annum. Carborundum Universal definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Carborundum Universal's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Carborundum Universal is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Carborundum Universal (of which 1 is significant!) you should know about. 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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