Sutlej Textiles and Industries' (NSE:SUTLEJTEX) Dividend Will Be Increased To ₹1.85

The board of Sutlej Textiles and Industries Limited (NSE:SUTLEJTEX) has announced that it will be paying its dividend of ₹1.85 on the 29th of September, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 2.9%, providing a nice boost to shareholder returns.

Check out our latest analysis for Sutlej Textiles and Industries

Sutlej Textiles and Industries' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Sutlej Textiles and Industries' dividend was only 17% of earnings, however it was paying out 315% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share could rise by 5.1% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 16% by next year, which is in a pretty sustainable range.

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 ₹0.333 in 2012, and the most recent fiscal year payment was ₹1.85. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

We Could See Sutlej Textiles and Industries' Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Sutlej Textiles and Industries has seen EPS rising for the last five years, at 5.1% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Sutlej Textiles and Industries' prospects of growing its dividend payments in the future.

Our Thoughts On Sutlej Textiles and Industries' Dividend

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 Sutlej Textiles and Industries is a great stock to add to your portfolio if income is your focus.

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. Just as an example, we've come across 3 warning signs for Sutlej Textiles and Industries you should be aware of, and 2 of them don't sit too well with us. Is Sutlej Textiles and Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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