JK Lakshmi Cement (NSE:JKLAKSHMI) Is Increasing Its Dividend To ₹4.50

JK Lakshmi Cement Limited (NSE:JKLAKSHMI) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of September to ₹4.50. This will take the dividend yield to an attractive 0.8%, providing a nice boost to shareholder returns.

Check out our latest analysis for JK Lakshmi Cement

JK Lakshmi Cement's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, JK Lakshmi Cement was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 40.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 14%, 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. The annual payment during the last 10 years was ₹2.00 in 2014, and the most recent fiscal year payment was ₹6.50. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. JK Lakshmi Cement has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. JK Lakshmi Cement has impressed us by growing EPS at 37% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On JK Lakshmi Cement's Dividend

Overall, we always like to see the dividend being raised, but we don't think JK Lakshmi Cement will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for JK Lakshmi Cement that investors should take into consideration. Is JK Lakshmi Cement 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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