Mishra Dhatu Nigam (NSE:MIDHANI) Has Announced That Its Dividend Will Be Reduced To ₹1.54

Mishra Dhatu Nigam Limited (NSE:MIDHANI) is reducing its dividend from last year's comparable payment to ₹1.54 on the 29th of October. Based on this payment, the dividend yield will be 1.6%, which is lower than the average for the industry.

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 earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 6.8% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 33% by next year, which is in a pretty sustainable range.

Mishra Dhatu Nigam's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2018, the annual payment back then was ₹2.10, compared to the most recent full-year payment of ₹3.10. This means that it has been growing its distributions at 10% per annum 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.

Mishra Dhatu Nigam Could Grow Its Dividend

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 6.8% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Mishra Dhatu Nigam's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Mishra Dhatu Nigam is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Mishra Dhatu Nigam that investors need to be conscious of moving forward. 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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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.