Is K.C.P. Sugar and Industries Corporation Limited (NSE:KCPSUGIND) A Risky Dividend Stock?

Could K.C.P. Sugar and Industries Corporation Limited (NSE:KCPSUGIND) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

While K.C.P. Sugar and Industries's 0.6% dividend yield is not the highest, we think its lengthy payment history is quite interesting. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Explore this interactive chart for our latest analysis on K.C.P. Sugar and Industries!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. While K.C.P. Sugar and Industries pays a dividend, it reported a loss over the last year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

K.C.P. Sugar and Industries' cash payout ratio last year was 1.2%, which is quite low and suggests that the dividend was thoroughly covered by cash flow.

Remember, you can always get a snapshot of K.C.P. Sugar and Industries' latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of K.C.P. Sugar and Industries' dividend payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was ₹0.8 in 2011, compared to ₹0.1 last year. This works out to a decline of approximately 87% over that time.

A shrinking dividend over a 10-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. K.C.P. Sugar and Industries' EPS have fallen by approximately 40% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and K.C.P. Sugar and Industries' earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that K.C.P. Sugar and Industries' dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're not keen on the fact that K.C.P. Sugar and Industries paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. In summary, K.C.P. Sugar and Industries has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are likely more attractive alternatives out there.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for K.C.P. Sugar and Industries (1 doesn't sit too well with us!) that you should be aware of before investing.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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This article by Simply Wall St is general in nature. 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.
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