Kalyani Steels (NSE:KSL) Has Announced A Dividend Of ₹10.00

Kalyani Steels Limited's (NSE:KSL) investors are due to receive a payment of ₹10.00 per share on 2nd of September. This means the annual payment will be 1.1% of the current stock price, which is lower than the industry average.

See our latest analysis for Kalyani Steels

Kalyani Steels' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Kalyani Steels is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share could rise by 13.5% 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 18% 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. The annual payment during the last 10 years was ₹3.00 in 2014, and the most recent fiscal year payment was ₹10.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

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. Kalyani Steels has seen EPS rising for the last five years, at 14% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Kalyani Steels' prospects of growing its dividend payments in the future.

Our Thoughts On Kalyani Steels' Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Kalyani Steels you should be aware of, and 1 of them is a bit concerning. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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