Signet Industries Limited (NSE:SIGIND) has announced that it will pay a dividend of ₹0.50 per share on the 25th of October. Based on this payment, the dividend yield on the company's stock will be 0.7%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Signet Industries
Signet Industries' Earnings Easily Cover The Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Signet Industries' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Looking forward, EPS could fall by 2.7% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 11%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹1.20 in 2014, and the most recent fiscal year payment was ₹0.50. Doing the maths, this is a decline of about 8.4% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend's Growth Prospects Are Limited
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Signet Industries has seen earnings per share falling at 2.7% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Signet Industries (of which 1 is potentially serious!) you should know about. 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.
About NSEI:SIGIND
Signet Industries
Primarily engages in merchant trading of various polymer and plastic granules in India.
Fair value second-rate dividend payer.
