Redington's (NSE:REDINGTON) Dividend Will Be Increased To ₹6.80

The board of Redington Limited (NSE:REDINGTON) has announced that it will be increasing its dividend by 9.7% on the 28th of August to ₹6.80, up from last year's comparable payment of ₹6.20. This makes the dividend yield 2.3%, which is above the industry average.

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Redington's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Redington was paying a whopping 374% as a dividend, but this only made up 40% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share is forecast to rise by 41.3% over the next year. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Redington

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ₹0.45 in 2015 to the most recent total annual payment of ₹6.20. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Redington has seen EPS rising for the last five years, at 25% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Redington's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Redington's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Redington that you should be aware of before investing. 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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