CSL Finance (NSE:CSLFINANCE) Will Pay A Dividend Of ₹2.50

The board of CSL Finance Limited (NSE:CSLFINANCE) has announced that it will pay a dividend of ₹2.50 per share on the 21st of October. Including this payment, the dividend yield on the stock will be 0.6%, which is a modest boost for shareholders' returns.

Check out our latest analysis for CSL Finance

CSL Finance's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, CSL Finance was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 17.5% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 8.7%, which is in the range that makes us comfortable with the sustainability of the dividend.

CSL Finance Doesn't Have A Long Payment History

It is great to see that CSL Finance 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. The dividend has gone from an annual total of ₹0.333 in 2017 to the most recent total annual payment of ₹2.50. This means that it has been growing its distributions at 33% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that CSL Finance has been growing its earnings per share at 17% a year over the past five years. CSL Finance definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On CSL Finance's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about CSL Finance's payments, as there could be some issues with sustaining them into the future. While CSL Finance is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for CSL Finance (1 is a bit unpleasant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.