ADF Foods (NSE:ADFFOODS) Has Announced A Dividend Of ₹0.60

ADF Foods Limited (NSE:ADFFOODS) will pay a dividend of ₹0.60 on the 11th of September. This means that the annual payment is 0.5% of the current stock price, which is lower than what the rest of the industry is paying.

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ADF Foods' Projected Earnings Seem Likely To Cover Future Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. ADF Foods is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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, earnings per share is forecast to rise by 21.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for ADF Foods

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ₹0.30 in 2015, and the most recent fiscal year payment was ₹1.20. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. ADF Foods has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. ADF Foods has impressed us by growing EPS at 8.1% per year over the past five years. ADF Foods definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While ADF Foods is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, ADF Foods has 2 warning signs (and 1 which is potentially serious) we think you should know about. 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.