India Grid Trust (NSE:INDIGRID) Is Increasing Its Dividend To ₹3.30

India Grid Trust (NSE:INDIGRID) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of February to ₹3.30. This will take the dividend yield to an attractive 9.5%, providing a nice boost to shareholder returns.

See our latest analysis for India Grid Trust

India Grid Trust Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, India Grid Trust's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share is forecast to fall by 4.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach over 200%, which could put the dividend under pressure if earnings don't start to improve.

India Grid Trust Is Still Building Its Track Record

India Grid Trust's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of ₹11.00 in 2018 to the most recent total annual payment of ₹13.20. This works out to be a compound annual growth rate (CAGR) of approximately 3.7% a year over that time. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

India Grid Trust May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. India Grid Trust has seen earnings per share falling at 4.3% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

India Grid Trust's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think India Grid Trust will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, India Grid Trust has 3 warning signs (and 2 which are concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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