Why You Might Be Interested In Bannari Amman Sugars Limited (NSE:BANARISUG) For Its Upcoming Dividend

Bannari Amman Sugars Limited (NSE:BANARISUG) is about to trade ex-dividend in the next 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Bannari Amman Sugars' shares on or after the 13th of September, you won't be eligible to receive the dividend, when it is paid on the 23rd of October.

The company's next dividend payment will be ₹12.50 per share, and in the last 12 months, the company paid a total of ₹12.50 per share. Based on the last year's worth of payments, Bannari Amman Sugars stock has a trailing yield of around 0.4% on the current share price of ₹3478.45. If you buy this business for its dividend, you should have an idea of whether Bannari Amman Sugars's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Bannari Amman Sugars

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bannari Amman Sugars has a low and conservative payout ratio of just 10% of its income after tax. A useful secondary check can be to evaluate whether Bannari Amman Sugars generated enough free cash flow to afford its dividend. Luckily it paid out just 12% of its free cash flow last year.

It's positive to see that Bannari Amman Sugars's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Bannari Amman Sugars's earnings per share have risen 14% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Bannari Amman Sugars's dividend payments are effectively flat on where they were 10 years ago.

Final Takeaway

Has Bannari Amman Sugars got what it takes to maintain its dividend payments? Bannari Amman Sugars has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

So while Bannari Amman Sugars looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Bannari Amman Sugars you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.