Life Insurance Corporation of India's (NSE:LICI) Shareholders Will Receive A Bigger Dividend Than Last Year

Life Insurance Corporation of India (NSE:LICI) will increase its dividend from last year's comparable payment on the 25th of September to ₹12.00. This will take the annual payment to 1.3% of the stock price, which is above what most companies in the industry pay.

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Life Insurance Corporation of India's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Life Insurance Corporation of India's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 36.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 10.0% by next year, which is in a pretty sustainable range.

See our latest analysis for Life Insurance Corporation of India

Life Insurance Corporation of India Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2022, the dividend has gone from ₹1.50 total annually to ₹12.00. This works out to be a compound annual growth rate (CAGR) of approximately 100% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Life Insurance Corporation of India has seen EPS rising for the last five years, at 16% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Life Insurance Corporation of India's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Life Insurance Corporation of India 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Life Insurance Corporation of India (2 are concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.