Ugar Sugar Works' (NSE:UGARSUGAR) Upcoming Dividend Will Be Larger Than Last Year's

By
Simply Wall St
Published
September 01, 2021
NSEI:UGARSUGAR
Source: Shutterstock

The Ugar Sugar Works Limited (NSE:UGARSUGAR) has announced that it will be increasing its dividend on the 22nd of October to ₹0.20. Although the dividend is now higher, the yield is only 0.7%, which is below the industry average.

Check out our latest analysis for Ugar Sugar Works

Ugar Sugar Works' Earnings Easily Cover the Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Ugar Sugar Works was earning enough to cover the dividend, but free cash flows weren't positive. 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 34.7% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 26%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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NSEI:UGARSUGAR Historic Dividend September 2nd 2021

Ugar Sugar Works' Dividend Has Lacked Consistency

Looking back, Ugar Sugar Works' dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from ₹0.25 in 2012 to the most recent annual payment of ₹0.20. This works out to be a decline of approximately 2.4% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Ugar Sugar Works' EPS has fallen by approximately 35% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Ugar Sugar Works will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Ugar Sugar Works has 5 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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