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Is Pokarna Limited (NSE:POKARNA) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
Investors might not know much about Pokarna's dividend prospects, even though it has been paying dividends for the last five years and offers a 0.4% yield. While the yield may not look too great, the relatively long payment history is interesting. Some simple research can reduce the risk of buying Pokarna for its dividend - read on to learn more.
Explore this interactive chart for our latest analysis on Pokarna!
Payout ratios
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 1.8% of Pokarna's profits were paid out as dividends in the last 12 months. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Pokarna's cash payout ratio last year was 4.6%, which is quite low and suggests that the dividend was thoroughly covered by cash flow. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
We update our data on Pokarna every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Pokarna has been paying a dividend for the past five years. During the past five-year period, the first annual payment was ₹0.40 in 2014, compared to ₹0.60 last year. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% a year over that time.
The dividend has been growing at a reasonable rate, which we like. We're conscious though that one of the best ways to detect a multi-decade consistent dividend-payer, is to watch a company pay dividends for 20 years - a distinction Pokarna has not achieved yet.