DCM Shriram (NSE:DCMSHRIRAM) Will Pay A Larger Dividend Than Last Year At ₹4.90

DCM Shriram Limited (NSE:DCMSHRIRAM) has announced that it will be increasing its dividend on the 18th of August to ₹4.90. This makes the dividend yield 1.5%, which is above the industry average.

See our latest analysis for DCM Shriram

DCM Shriram's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, DCM Shriram was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 15.0% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 22%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from ₹0.40 to ₹14.70. This implies that the company grew its distributions at a yearly rate of about 43% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. DCM Shriram has seen EPS rising for the last five years, at 15% per annum. DCM Shriram definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

DCM Shriram Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that DCM Shriram is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for DCM Shriram that investors need to be conscious of moving forward. 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.