Ramkrishna Forgings (NSE:RKFORGE) Is Paying Out A Dividend Of ₹1.00

The board of Ramkrishna Forgings Limited (NSE:RKFORGE) has announced that it will pay a dividend on the 23rd of November, with investors receiving ₹1.00 per share. The dividend yield is 0.2% based on this payment, which is a little bit low compared to the other companies in the industry.

View our latest analysis for Ramkrishna Forgings

Ramkrishna Forgings' Payment Could Potentially Have Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Ramkrishna Forgings is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 62.7%. If the dividend continues on this path, the payout ratio could be 7.0% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, 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. Ramkrishna Forgings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. Ramkrishna Forgings has impressed us by growing EPS at 35% per 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.

We should note that Ramkrishna Forgings has issued stock equal to 13% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Ramkrishna Forgings' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Ramkrishna Forgings' payments, as there could be some issues with sustaining them into the future. While Ramkrishna Forgings is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Ramkrishna Forgings has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.