Infosys (NSE:INFY) Will Pay A Larger Dividend Than Last Year At $18.00

Infosys Limited (NSE:INFY) has announced that it will be increasing its dividend from last year's comparable payment on the 6th of November to $18.00. This will take the annual payment to 2.4% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Infosys

Infosys Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Infosys' dividend was comfortably covered by both cash flow and earnings. 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 27.5%. However, if the dividend continues 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

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.0763 in 2013 to the most recent total annual payment of $0.42. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Infosys Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Infosys has seen EPS rising for the last five years, at 5.3% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On Infosys' Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Infosys that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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