Nelcast (NSE:NELCAST) Will Pay A Larger Dividend Than Last Year At ₹0.30

The board of Nelcast Limited (NSE:NELCAST) has announced that the dividend on 2nd of September will be increased to ₹0.30, which will be 50% higher than last year. This takes the annual payment to 0.5% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Nelcast

Nelcast's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Nelcast is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, EPS could fall by 16.0% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 33%, which is definitely feasible to continue.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from ₹0.60 in 2012 to the most recent annual payment of ₹0.20. The dividend has fallen 67% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings per share has been sinking by 16% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Nelcast's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Nelcast's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Nelcast (2 are potentially serious!) that you should be aware of before investing. Is Nelcast not quite the opportunity you were looking for? Why not check out our selection of top 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.