The board of Avanti Feeds Limited (NSE:AVANTIFEED) has announced that it will pay a dividend on the 11th of September, with investors receiving ₹6.25 per share. The dividend yield will be 1.4% based on this payment which is still above the industry average.
Check out our latest analysis for Avanti Feeds
Avanti Feeds' Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Avanti Feeds was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
The next year is set to see EPS grow by 127.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 18% 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. Since 2012, the annual payment back then was ₹0.433, compared to the most recent full-year payment of ₹6.25. This works out to be a compound annual growth rate (CAGR) of approximately 31% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
Avanti Feeds May Find It Hard To Grow The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Avanti Feeds hasn't seen much change in its earnings per share over the last five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Avanti Feeds' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Avanti Feeds has 3 warning signs (and 1 which is a bit unpleasant) 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.
About NSEI:AVANTIFEED
Avanti Feeds
Manufactures and sells shrimp feeds in India, Europe, the United States of America, Japan, Korea, China, Russia, Canada, and the Middle East.
Solid track record with excellent balance sheet and pays a dividend.
