Ponni Sugars (Erode) (NSE:PONNIERODE) Is Paying Out Less In Dividends Than Last Year

The board of Ponni Sugars (Erode) Limited (NSE:PONNIERODE) has announced that the dividend on 18th of June will be reduced by 57% from last year's ₹7.00 to ₹3.00. The yield is still above the industry average at 2.1%.

Our free stock report includes 3 warning signs investors should be aware of before investing in Ponni Sugars (Erode). Read for free now.

Ponni Sugars (Erode)'s Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Ponni Sugars (Erode) is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, EPS could fall by 9.0% 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 6.3%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for Ponni Sugars (Erode)

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. Since 2015, the annual payment back then was ₹0.60, compared to the most recent full-year payment of ₹7.00. This implies that the company grew its distributions at a yearly rate of about 28% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Ponni Sugars (Erode)'s earnings per share has fallen at approximately 9.0% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Ponni Sugars (Erode)'s Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Ponni Sugars (Erode) that investors should know about before committing capital to this stock. Is Ponni Sugars (Erode) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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