Sutlej Textiles and Industries' (NSE:SUTLEJTEX) Dividend Will Be Reduced To ₹1.00

Sutlej Textiles and Industries Limited (NSE:SUTLEJTEX) is reducing its dividend from last year's comparable payment to ₹1.00 on the 20th of September. The yield is still above the industry average at 2.1%.

Check out our latest analysis for Sutlej Textiles and Industries

Sutlej Textiles and Industries' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Sutlej Textiles and Industries' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 19.9% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 56%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹0.333 in 2013, and the most recent fiscal year payment was ₹1.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Potential Is Shaky

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' earnings per share has shrunk at 20% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Our Thoughts On Sutlej Textiles and Industries' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 5 warning signs for Sutlej Textiles and Industries you should be aware of, and 1 of them is a bit concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.