Castrol India's (NSE:CASTROLIND) Upcoming Dividend Will Be Larger Than Last Year's

Castrol India Limited (NSE:CASTROLIND) has announced that it will be increasing its periodic dividend on the 31st of August to ₹3.00, which will be 20% higher than last year's comparable payment amount of ₹2.50. This will take the dividend yield to an attractive 4.8%, providing a nice boost to shareholder returns.

See our latest analysis for Castrol India

Castrol India's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Castrol India was paying out 73% of earnings, but a comparatively small 65% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS could expand by 5.7% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 72% by next year, which is in a pretty sustainable range.

Castrol India Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from ₹3.75 total annually to ₹5.50. This implies that the company grew its distributions at a yearly rate of about 3.9% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

We Could See Castrol India's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Castrol India has impressed us by growing EPS at 5.7% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Castrol India Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. See if management have their own wealth at stake, by checking insider shareholdings in Castrol India stock. 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.