Pashupati Cotspin (NSE:PASHUPATI) Is Paying Out A Larger Dividend Than Last Year

Pashupati Cotspin Limited (NSE:PASHUPATI) has announced that it will be increasing its dividend on the 30th of October to ₹0.75. This will take the dividend yield from 0.9% to 0.9%, providing a nice boost to shareholder returns.

Check out our latest analysis for Pashupati Cotspin

Pashupati Cotspin's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Pashupati Cotspin 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.

Looking forward, EPS could fall by 19.5% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 25%, which is definitely feasible to continue.

Pashupati Cotspin Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from ₹0.50 in 2019 to the most recent annual payment of ₹0.75. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. Pashupati Cotspin has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Pashupati Cotspin's EPS has declined at around 19% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Pashupati Cotspin's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Pashupati Cotspin is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Pashupati Cotspin (of which 2 shouldn't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.
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