Ambika Cotton Mills' (NSE:AMBIKCO) Dividend Will Be ₹35.00

The board of Ambika Cotton Mills Limited (NSE:AMBIKCO) has announced that it will pay a dividend of ₹35.00 per share on the 29th of October. The dividend yield will be 2.1% based on this payment which is still above the industry average.

View our latest analysis for Ambika Cotton Mills

Ambika Cotton Mills' Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Ambika Cotton Mills was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 8.1% over the next 12 months. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ₹5.00 in 2013 to the most recent total annual payment of ₹35.00. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

We Could See Ambika Cotton Mills' Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Ambika Cotton Mills has impressed us by growing EPS at 8.1% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Ambika Cotton Mills' prospects of growing its dividend payments in the future.

Our Thoughts On Ambika Cotton Mills' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Ambika Cotton Mills' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 2 warning signs for Ambika Cotton Mills that investors need to be conscious of moving forward. Is Ambika Cotton Mills not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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