The board of Salona Cotspin Limited (NSE:SALONA) has announced that it will pay a dividend on the 25th of October, with investors receiving ₹1.20 per share. Based on this payment, the dividend yield will be 0.4%, which is fairly typical for the industry.
View our latest analysis for Salona Cotspin
Salona Cotspin's Earnings Easily Cover The Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Salona Cotspin was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Looking forward, earnings per share could rise by 45.8% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 3.4% by next year, which we think can be pretty sustainable going forward.
Salona Cotspin's Dividend Has Lacked Consistency
Looking back, Salona Cotspin's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The last annual payment of ₹1.20 was flat on the annual payment from9 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 Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Salona Cotspin has seen EPS rising for the last five years, at 46% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Salona Cotspin'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 don't think Salona Cotspin is a great stock to add to your portfolio if income is your focus.
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. To that end, Salona Cotspin has 3 warning signs (and 1 which can't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
About NSEI:SALONA
Salona Cotspin
Produces and sells cotton yarn, knitted fabrics, and garments in India.
Slight with mediocre balance sheet.
