Ramkrishna Forgings (NSE:RKFORGE) Is Increasing Its Dividend To ₹1.00

Ramkrishna Forgings Limited (NSE:RKFORGE) will increase its dividend from last year's comparable payment on the 18th of November to ₹1.00. Although the dividend is now higher, the yield is only 0.3%, which is below the industry average.

See our latest analysis for Ramkrishna Forgings

Ramkrishna Forgings' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Ramkrishna Forgings' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 60.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 8.5% 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. Since 2013, the annual payment back then was ₹0.20, compared to the most recent full-year payment of ₹2.00. This means that it has been growing its distributions at 26% 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Ramkrishna Forgings has been growing its earnings per share at 23% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Ramkrishna Forgings Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Ramkrishna Forgings that investors should know about before committing capital to this stock. Is Ramkrishna Forgings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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