Ricegrowers (ASX:SGLLV) Has Re-Affirmed Its Dividend Of AU$0.33

Ricegrowers Limited (ASX:SGLLV) will pay a dividend of AU$0.33 on the 30th of July. Based on this payment, the dividend yield on the company's stock will be 4.9%, which is an attractive boost to shareholder returns.

See our latest analysis for Ricegrowers

Ricegrowers' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 95% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Looking forward, earnings per share is forecast to rise by 38.8% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 72% which would be quite comfortable going to take the dividend forward.

Ricegrowers Doesn't Have A Long Payment History

It is great to see that Ricegrowers has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2015, the first annual payment was AU$0.26, compared to the most recent full-year payment of AU$0.33. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Ricegrowers' earnings per share has shrunk at 17% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Ricegrowers' Dividend Doesn't Look Great

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Ricegrowers make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Ricegrowers that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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