Sundram Fasteners (NSE:SUNDRMFAST) Has Announced That Its Dividend Will Be Reduced To ₹2.68

Sundram Fasteners Limited (NSE:SUNDRMFAST) has announced that on 1st of December, it will be paying a dividend of₹2.68, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 0.4%, which is lower than the average for the industry.

Check out our latest analysis for Sundram Fasteners

Sundram Fasteners' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Sundram Fasteners' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 129.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 12%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was ₹1.40, compared to the most recent full-year payment of ₹5.36. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Sundram Fasteners has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

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. Sundram Fasteners hasn't seen much change in its earnings per share over the last five years. While growth may be thin on the ground, Sundram Fasteners could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Even though the dividend was cut this year, we think Sundram Fasteners has the ability to make consistent payments in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Sundram Fasteners that investors should take into consideration. 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.