ADF Foods (NSE:ADFFOODS) Will Pay A Larger Dividend Than Last Year At ₹5.00

ADF Foods Limited (NSE:ADFFOODS) has announced that it will be increasing its periodic dividend on the 8th of September to ₹5.00, which will be 25% higher than last year's comparable payment amount of ₹4.00. Although the dividend is now higher, the yield is only 0.5%, which is below the industry average.

Check out our latest analysis for ADF Foods

ADF Foods' Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, ADF Foods' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS could expand by 24.5% if recent trends continue. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

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 ₹1.50 in 2013, and the most recent fiscal year payment was ₹4.00. This means that it has been growing its distributions at 10% per annum 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 Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that ADF Foods has grown earnings per share at 25% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like ADF Foods' Dividend

Overall, a dividend increase is always good, and we think that ADF Foods is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for ADF Foods that investors should know about before committing capital to this stock. 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.