Torrent Power Limited (NSE:TORNTPOWER) will pay a dividend of Rs 10.00 on March 9. This means the annual payout is 1.2% of the current share price, which is lower than what the rest of the industry pays.
While dividend yields are important for income investors, it is also important to consider any major share price movements, as they will generally offset any gains from distributions. Investors will be pleased to see that the Torrent Power share price has risen 43% in the last 3 months, which is good for shareholders and may also explain a decline in dividend yield.
Check out our latest analysis for Torrent Power
Torrent Power earnings easily cover distributions
The dividend yield is a bit low, but the sustainability of payments is also an important part of evaluating an income stock. Before making this announcement, Torrent Power was easily earning enough to cover the dividend. This means that most of what the company earns is used to help it grow.
Looking ahead, earnings per share are expected to rise 30.9% over the next year. Assuming the dividend continues recent trends, we think the payout ratio could be 28% next year, which is in a fairly sustainable range.
Dividend volatility
While the company has been paying dividends for a long time, it has cut it at least once in the last 10 years. The annual payment for the last 10 years was INR 2.00 in 2014, and the payment for the most recent financial year was INR 13.00. This equates to a compound annual growth rate (CAGR) of approximately 21% per year over that time. It's great to see strong growth in dividend payments, but cuts are worrying as they may indicate that the payout policy is too ambitious.
Dividend likely to grow
With a relatively unstable dividend, it's even more important to see if earnings per share are growing. Torrent Power has seen EPS increase over the last five years, 15% annually. The EPS growth bodes well for the dividend, as does the low payout ratio the company currently reports.
Torrent Power Looks Like a Great Dividend Stock
Overall, we think Torrent Power could be a great dividend investing option, although we would have preferred the dividend not to be cut this year. The cut will allow the company to continue paying the dividend without putting pressure on the balance sheet, meaning it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.
It is important to note that companies that have a consistent dividend policy will generate greater investor confidence than those that have an erratic policy. However, there are other things investors should consider when analyzing stock performance. As an example, we have identified 2 warning signs for Torrent Power What you should take into account before investing. Looking for more high-yield dividend ideas? Try our collection of strong dividend payers.
Valuation is complex, but we are helping to simplify it.
Find out if torrent power is potentially overvalued or undervalued by checking out our full analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or financial situation. Our goal is to provide you with focused, long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
