Nahar Spinning Mills (NSE:NAHARSPING) Has Announced That Its Dividend Will Be Reduced To ₹1.00

Nahar Spinning Mills Limited (NSE:NAHARSPING) has announced that on 25th of October, it will be paying a dividend of₹1.00, which a reduction from last year's comparable dividend. This means that the dividend yield is 0.3%, which is a bit low when comparing to other companies in the industry.

View our latest analysis for Nahar Spinning Mills

Nahar Spinning Mills Might Find It Hard To Continue The Dividend

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Despite not generating a profit, Nahar Spinning Mills is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Looking forward, earnings per share could rise by 11.1% over the next year if the trend from the last few years continues. This is the right direction to be moving, but it is probably not enough to achieve profitability. Unless this happens fairly soon, the dividend could start to come under pressure.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The last annual payment of ₹1.00 was flat on the annual payment from10 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Company Could Face Some Challenges Growing The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Nahar Spinning Mills has grown earnings per share at 11% per year over the past five years. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 Nahar Spinning Mills that investors need to be conscious of moving forward. Is Nahar Spinning Mills not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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