Avadh Sugar & Energy (NSE:AVADHSUGAR) Is Paying Out A Dividend Of ₹10.00

The board of Avadh Sugar & Energy Limited (NSE:AVADHSUGAR) has announced that it will pay a dividend on the 30th of August, with investors receiving ₹10.00 per share. This means the annual payment is 1.5% of the current stock price, which is above the average for the industry.

See our latest analysis for Avadh Sugar & Energy

Avadh Sugar & Energy's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Avadh Sugar & Energy's earnings easily covered the dividend, but free cash flows were negative. 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.

Over the next year, EPS could expand by 1.3% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

Avadh Sugar & Energy Is Still Building Its Track Record

It is great to see that Avadh Sugar & Energy has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of ₹0.50 in 2018 to the most recent total annual payment of ₹10.00. This means that it has been growing its distributions at 65% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, Avadh Sugar & Energy's EPS was effectively flat over the past five years, which could stop the company from paying more every year. While growth may be thin on the ground, Avadh Sugar & Energy could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Avadh Sugar & Energy's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 2 warning signs for Avadh Sugar & Energy (of which 1 makes us a bit uncomfortable!) 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.

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