National Aluminium (NSE:NATIONALUM) Is Paying Out Less In Dividends Than Last Year

National Aluminium Company Limited (NSE:NATIONALUM) is reducing its dividend from last year's comparable payment to ₹1.00 on the 21st of October. This means that the annual payment is 4.5% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for National Aluminium

National Aluminium's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, National Aluminium's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next year is set to see EPS grow by 8.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 73% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹0.85 in 2013, and the most recent fiscal year payment was ₹4.50. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. 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's Growth Prospects Are Limited

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. However, National Aluminium's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think National Aluminium is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for National Aluminium 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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