Readers hoping to buy The Supreme Industries Limited (NSE:SUPREMEIND) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 6th of March to receive the dividend, which will be paid on the 29th of March.
Supreme Industries’s next dividend payment will be ₹10.00 per share, on the back of last year when the company paid a total of ₹14.00 to shareholders. Calculating the last year’s worth of payments shows that Supreme Industries has a trailing yield of 1.1% on the current share price of ₹1319.2. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Supreme Industries paid out a comfortable 35% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (86%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
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.
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. For this reason, we’re glad to see Supreme Industries’s earnings per share have risen 12% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we’d wonder why management are not reinvesting more in the business.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, Supreme Industries has lifted its dividend by approximately 19% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
From a dividend perspective, should investors buy or avoid Supreme Industries? Earnings per share have grown at a nice rate in recent times and over the last year, Supreme Industries paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
Ever wonder what the future holds for Supreme Industries? See what the 23 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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