India Motor Parts & Accessories (NSE:IMPAL) Has Announced A Dividend Of ₹10.00

The board of India Motor Parts & Accessories Limited (NSE:IMPAL) has announced that it will pay a dividend on the 14th of February, with investors receiving ₹10.00 per share. This will take the dividend yield to an attractive 2.5%, providing a nice boost to shareholder returns.

View our latest analysis for India Motor Parts & Accessories

India Motor Parts & Accessories' Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite comfortably covered by India Motor Parts & Accessories' earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 80% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share could rise by 9.8% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 47% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from ₹6.00 total annually to ₹27.00. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. India Motor Parts & Accessories 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.

India Motor Parts & Accessories Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. India Motor Parts & Accessories has impressed us by growing EPS at 9.8% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Our Thoughts On India Motor Parts & Accessories' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While India Motor Parts & Accessories is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for India Motor Parts & Accessories 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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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.