Dalmia Bharat Sugar and Industries (NSE:DALMIASUG) Has Announced A Dividend Of ₹3.00

The board of Dalmia Bharat Sugar and Industries Limited (NSE:DALMIASUG) has announced that it will pay a dividend of ₹3.00 per share on the 5th of March. This payment means that the dividend yield will be 1.2%, which is around the industry average.

View our latest analysis for Dalmia Bharat Sugar and Industries

Dalmia Bharat Sugar and Industries' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Dalmia Bharat Sugar and Industries' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 47.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 15%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ₹0.25 in 2013 to the most recent total annual payment of ₹4.00. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. Dalmia Bharat Sugar and Industries has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See Dalmia Bharat Sugar and Industries' Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Dalmia Bharat Sugar and Industries has been growing its earnings per share at 7.5% a year over the past five years. Dalmia Bharat Sugar and Industries definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

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 don't think Dalmia Bharat Sugar and Industries 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. Taking the debate a bit further, we've identified 2 warning signs for Dalmia Bharat Sugar and Industries that investors need to be conscious of moving forward. Is Dalmia Bharat Sugar and Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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