Bannari Amman Sugars (NSE:BANARISUG) Has Affirmed Its Dividend Of ₹10.00

Bannari Amman Sugars Limited (NSE:BANARISUG) has announced that it will pay a dividend of ₹10.00 per share on the 9th of October. Including this payment, the dividend yield on the stock will be 0.4%, which is a modest boost for shareholders' returns.

See our latest analysis for Bannari Amman Sugars

Bannari Amman Sugars' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Bannari Amman Sugars' 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.

Looking forward, EPS could fall by 12.6% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 18%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 payments haven't really changed that much since 10 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Bannari Amman Sugars' earnings per share has shrunk at 13% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bannari Amman Sugars' payments, as there could be some issues with sustaining them into the future. While Bannari Amman Sugars is earning enough to cover the payments, the cash flows are lacking. We don't think Bannari Amman Sugars is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Bannari Amman Sugars (of which 2 are a bit concerning!) 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.