Stock Analysis

Mishra Dhatu Nigam's (NSE:MIDHANI) Upcoming Dividend Will Be Larger Than Last Year's

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Mishra Dhatu Nigam Limited (NSE:MIDHANI) will increase its dividend on the 14th of April to ₹1.68, which is 7.7% higher than last year's payment from the same period of ₹1.56. Even though the dividend went up, the yield is still quite low at only 1.6%.

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. Based on the last payment, Mishra Dhatu Nigam 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.

Over the next year, EPS could expand by 5.4% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

NSEI:MIDHANI Historic Dividend March 18th 2023

Mishra Dhatu Nigam's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2018, the annual payment back then was ₹2.10, compared to the most recent full-year payment of ₹3.10. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Mishra Dhatu Nigam has grown earnings per share at 5.4% per year over the past five years. Mishra Dhatu Nigam definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Mishra Dhatu Nigam that investors should take into consideration. 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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