Is It Worth Considering Somany Ceramics Limited (NSE:SOMANYCERA) For Its Upcoming Dividend?

By
Simply Wall St
Published
March 19, 2021
NSEI:SOMANYCERA
Source: Shutterstock

It looks like Somany Ceramics Limited (NSE:SOMANYCERA) is about to go ex-dividend in the next three days. You will need to purchase shares before the 24th of March to receive the dividend, which will be paid on the 16th of April.

Somany Ceramics's upcoming dividend is ₹2.40 a share, following on from the last 12 months, when the company distributed a total of ₹2.40 per share to shareholders. Last year's total dividend payments show that Somany Ceramics has a trailing yield of 0.6% on the current share price of ₹413.15. If you buy this business for its dividend, you should have an idea of whether Somany Ceramics's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Somany Ceramics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 7.5% of its free cash flow last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NSEI:SOMANYCERA Historic Dividend March 20th 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Somany Ceramics's earnings per share have fallen at approximately 19% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Somany Ceramics has lifted its dividend by approximately 15% a year on average.

To Sum It Up

Has Somany Ceramics got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Somany Ceramics's dividend merits.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 4 warning signs for Somany Ceramics (1 is concerning) you should be aware of.

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.

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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. 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.
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