Bombay Dyeing and Manufacturing (NSE:BOMDYEING) Will Pay A Dividend Of ₹1.20

The Bombay Dyeing and Manufacturing Company Limited (NSE:BOMDYEING) has announced that it will pay a dividend of ₹1.20 per share on the 12th of September. Based on this payment, the dividend yield on the company's stock will be 0.7%, which is an attractive boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Bombay Dyeing and Manufacturing's stock price has increased by 36% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Bombay Dyeing and Manufacturing's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Bombay Dyeing and Manufacturing was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 8.3% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 4.9%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Bombay Dyeing and Manufacturing

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ₹0.80 in 2015, and the most recent fiscal year payment was ₹1.20. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Bombay Dyeing and Manufacturing Could Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Bombay Dyeing and Manufacturing has been growing its earnings per share at 8.3% a year over the past five years. Bombay Dyeing and Manufacturing definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Bombay Dyeing and Manufacturing's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bombay Dyeing and Manufacturing's 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Bombay Dyeing and Manufacturing (of which 1 can't be ignored!) you should know about. Is Bombay Dyeing and Manufacturing not quite the opportunity you were looking for? Why not check out our selection of top 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.