India Grid Trust's (NSE:INDIGRID) Upcoming Dividend Will Be Larger Than Last Year's

The board of India Grid Trust (NSE:INDIGRID) has announced that it will be paying its dividend of ₹3.30 on the 10th of August, an increased payment from last year's comparable dividend. This makes the dividend yield 9.2%, which is above the industry average.

Check out our latest analysis for India Grid Trust

India Grid Trust Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, the company's dividend was higher than its profits, and made up 95% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

The next 12 months is set to see EPS grow by 12.5%. 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.

India Grid Trust Is Still Building Its Track Record

It is great to see that India Grid Trust has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2017, the annual payment back then was ₹11.00, compared to the most recent full-year payment of ₹13.20. This works out to be a compound annual growth rate (CAGR) of approximately 3.7% a year over that time. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. It's not great to see that India Grid Trust's earnings per share has fallen at approximately 7.9% per year over the past 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. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

We should note that India Grid Trust has issued stock equal to 20% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

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 track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, India Grid Trust has 3 warning signs (and 2 which are a bit concerning) we think you should know about. Is India Grid Trust not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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