There's A Lot To Like About Bannari Amman Sugars' (NSE:BANARISUG) Upcoming ₹12.50 Dividend

Bannari Amman Sugars Limited (NSE:BANARISUG) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Bannari Amman Sugars' shares before the 28th of August to receive the dividend, which will be paid on the 4th of October.

The company's upcoming dividend is ₹12.50 a share, following on from the last 12 months, when the company distributed a total of ₹12.50 per share to shareholders. Calculating the last year's worth of payments shows that Bannari Amman Sugars has a trailing yield of 0.4% on the current share price of ₹2780.15. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Bannari Amman Sugars

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bannari Amman Sugars has a low and conservative payout ratio of just 11% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 2.9% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Bannari Amman Sugars paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Bannari Amman Sugars earnings per share are up 8.5% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Bannari Amman Sugars's dividend payments are effectively flat on where they were 10 years ago.

The Bottom Line

From a dividend perspective, should investors buy or avoid Bannari Amman Sugars? Earnings per share growth has been growing somewhat, and Bannari Amman Sugars is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Bannari Amman Sugars is halfway there. Bannari Amman Sugars looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Bannari Amman Sugars is facing. Every company has risks, and we've spotted 1 warning sign for Bannari Amman Sugars you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.