Indian Metals and Ferro Alloys (NSE:IMFA) Is Due To Pay A Dividend Of ₹7.50

The board of Indian Metals and Ferro Alloys Limited (NSE:IMFA) has announced that it will pay a dividend on the 30th of August, with investors receiving ₹7.50 per share. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Indian Metals and Ferro Alloys

Indian Metals and Ferro Alloys' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Indian Metals and Ferro Alloys' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 45.0% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.

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 2014, the annual payment back then was ₹2.50, compared to the most recent full-year payment of ₹15.00. This implies that the company grew its distributions at a yearly rate of about 20% 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. We are encouraged to see that Indian Metals and Ferro Alloys has grown earnings per share at 45% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Indian Metals and Ferro Alloys Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Indian Metals and Ferro Alloys that investors should take into consideration. Is Indian Metals and Ferro Alloys not quite the opportunity you were looking for? Why not check out our selection of top 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.

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