Ugar Sugar Works (NSE:UGARSUGAR) Will Pay A Larger Dividend Than Last Year At ₹0.20

The board of The Ugar Sugar Works Limited (NSE:UGARSUGAR) has announced that it will be increasing its dividend on the 22nd of October to ₹0.20. Despite this raise, the dividend yield of 0.7% is only a modest boost to shareholder returns.

Check out our latest analysis for Ugar Sugar Works

Ugar Sugar Works' Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Ugar Sugar Works was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

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.

Ugar Sugar Works' Dividend Has Lacked Consistency

Looking back, Ugar Sugar Works' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2012, the first annual payment was ₹0.25, compared to the most recent full-year payment of ₹0.20. Doing the maths, this is a decline of about 2.4% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 35% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

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. While Ugar Sugar Works is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 5 warning signs for Ugar Sugar Works (of which 1 is a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.
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