Mishra Dhatu Nigam (NSE:MIDHANI) Has Announced That It Will Be Increasing Its Dividend To ₹1.58

Mishra Dhatu Nigam Limited (NSE:MIDHANI) has announced that it will be increasing its dividend on the 29th of October to ₹1.58. Despite this raise, the dividend yield of 1.5% is only a modest boost to shareholder returns.

View our latest analysis for Mishra Dhatu Nigam

Mishra Dhatu Nigam's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Mishra Dhatu Nigam's dividend was only 28% of earnings, however it was paying out 310% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 9.3% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which is in the range that makes us comfortable with the sustainability of the dividend.

Mishra Dhatu Nigam's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2018, the first annual payment was ₹2.10, compared to the most recent full-year payment of ₹2.78. This implies that the company grew its distributions at a yearly rate of about 9.8% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Mishra Dhatu Nigam might have put its house in order since then, but we remain cautious.

We Could See Mishra Dhatu Nigam's Dividend Growing

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. Mishra Dhatu Nigam has impressed us by growing EPS at 9.3% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Mishra Dhatu Nigam's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Mishra Dhatu Nigam's payments are rock solid. While Mishra Dhatu Nigam is earning enough to cover the payments, the cash flows are lacking. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Mishra Dhatu Nigam that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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