Tata Metaliks' (NSE:TATAMETALI) Dividend Will Be Increased To ₹8.00

The board of Tata Metaliks Limited (NSE:TATAMETALI) has announced that it will be increasing its dividend on the 1st of September to ₹8.00. Even though the dividend went up, the yield is still quite low at only 1.2%.

See our latest analysis for Tata Metaliks

Tata Metaliks' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Tata Metaliks' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 10.3% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 12%, which is in the range that makes us comfortable with the sustainability of the dividend.

Tata Metaliks' Dividend Has Lacked Consistency

It's comforting to see that Tata Metaliks has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from ₹2.00 in 2016 to the most recent annual payment of ₹8.00. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. Tata Metaliks 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Tata Metaliks has seen EPS rising for the last five years, at 10% per annum. Tata Metaliks definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Tata Metaliks' Dividend

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. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Tata Metaliks that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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