Ambuja Cements (NSE:AMBUJACEM) Is Paying Out A Dividend Of ₹2.00

Ambuja Cements Limited (NSE:AMBUJACEM) has announced that it will pay a dividend of ₹2.00 per share on the 26th of July. Based on this payment, the dividend yield will be 0.4%, which is fairly typical for the industry.

We've discovered 2 warning signs about Ambuja Cements. View them for free.

Ambuja Cements' Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Ambuja Cements 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.

Over the next year, EPS is forecast to expand by 49.6%. If the dividend continues on this path, the payout ratio could be 8.0% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Ambuja Cements

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ₹4.00 in 2015 to the most recent total annual payment of ₹2.00. Doing the maths, this is a decline of about 6.7% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. We are encouraged to see that Ambuja Cements has grown earnings per share at 9.3% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Ambuja Cements' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Ambuja Cements (1 is a bit unpleasant!) that you should be aware of before investing. Is Ambuja Cements not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.