Jindal Steel & Power (NSE:JINDALSTEL) Will Pay A Dividend Of ₹2.00

Jindal Steel & Power Limited's (NSE:JINDALSTEL) investors are due to receive a payment of ₹2.00 per share on 29th of September. Including this payment, the dividend yield on the stock will be 0.2%, which is a modest boost for shareholders' returns.

View our latest analysis for Jindal Steel & Power

Jindal Steel & Power's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Jindal Steel & Power's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 73.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 2.2%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ₹1.60 in 2014, and the most recent fiscal year payment was ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 2.3% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

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. It's encouraging to see that Jindal Steel & Power has been growing its earnings per share at 31% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Jindal Steel & Power's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Jindal Steel & Power's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Jindal Steel & Power that investors should know about before committing capital to this stock. Is Jindal Steel & Power 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.