Should You Buy Ponni Sugars (Erode) Limited (NSE:PONNIERODE) For Its Upcoming Dividend?

Readers hoping to buy Ponni Sugars (Erode) Limited (NSE:PONNIERODE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 11th of August in order to be eligible for this dividend, which will be paid on the 25th of August.

Ponni Sugars (Erode)'s upcoming dividend is ₹4.00 a share, following on from the last 12 months, when the company distributed a total of ₹4.00 per share to shareholders. Based on the last year's worth of payments, Ponni Sugars (Erode) stock has a trailing yield of around 2.3% on the current share price of ₹177.4. If you buy this business for its dividend, you should have an idea of whether Ponni Sugars (Erode)'s dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Ponni Sugars (Erode)

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ponni Sugars (Erode) paid out just 11% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 13% of its free cash flow last year.

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.

Click here to see how much of its profit Ponni Sugars (Erode) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Ponni Sugars (Erode) has grown its earnings rapidly, up 35% a year for the past five years. Ponni Sugars (Erode) looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ponni Sugars (Erode)'s dividend payments are effectively flat on where they were 10 years ago.

The Bottom Line

Is Ponni Sugars (Erode) an attractive dividend stock, or better left on the shelf? It's great that Ponni Sugars (Erode) is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Ponni Sugars (Erode) is facing. For example, we've found 3 warning signs for Ponni Sugars (Erode) that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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