Ricegrowers (ASX:SGLLV) Will Pay A Dividend Of A$0.10

Ricegrowers Limited (ASX:SGLLV) has announced that it will pay a dividend of A$0.10 per share on the 27th of January. This means the annual payment is 5.3% of the current stock price, which is above the average for the industry.

View our latest analysis for Ricegrowers

Ricegrowers' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Ricegrowers' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to fall by 4.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 56%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Ricegrowers' Dividend Has Lacked Consistency

Ricegrowers has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of A$0.26 in 2015 to the most recent total annual payment of A$0.35. This means that it has been growing its distributions at 4.3% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 3.5% per annum over the last five years, which admittedly is a bit slow. The company has been growing at a pretty soft 3.5% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Ricegrowers' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Ricegrowers 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Ricegrowers (3 are potentially serious!) that you should be aware of before investing. Is Ricegrowers not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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