Infosys' (NSE:INFY) Upcoming Dividend Will Be Larger Than Last Year's

Infosys Limited (NSE:INFY) will increase its dividend on the 28th of June to ₹16.00. This takes the annual payment to 2.1% of the current stock price, which is about average for the industry.

See our latest analysis for Infosys

Infosys Is Paying Out More Than It Is Earning

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Infosys was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

The next 12 months is set to see EPS grow by 9.1%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was US$0.082 in 2012, and the most recent fiscal year payment was US$0.42. This means that it has been growing its distributions at 18% per annum over that time. Infosys 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.

We Could See Infosys' Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Infosys has been growing its earnings per share at 8.6% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

We Really Like Infosys' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Infosys that investors should know about before committing capital to this stock. Is Infosys 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.