Mishra Dhatu Nigam (NSE:MIDHANI) Is Increasing Its Dividend To ₹1.67

Mishra Dhatu Nigam Limited (NSE:MIDHANI) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of October to ₹1.67. Even though the dividend went up, the yield is still quite low at only 0.8%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Mishra Dhatu Nigam's stock price has increased by 84% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Mishra Dhatu Nigam

Mishra Dhatu Nigam's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Mishra Dhatu Nigam's earnings easily covered the dividend, but free cash flows were negative. 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 is forecast to rise by 18.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 36%, which is in the range that makes us comfortable with the sustainability of the dividend.

Mishra Dhatu Nigam's Dividend Has Lacked Consistency

Mishra Dhatu Nigam has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of ₹2.10 in 2018 to the most recent total annual payment of ₹3.35. This means that it has been growing its distributions at 9.8% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Mishra Dhatu Nigam has only grown its earnings per share at 3.0% per annum over the past five years. Growth of 3.0% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Mishra Dhatu Nigam's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Mishra Dhatu Nigam that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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