Andhra Paper's (NSE:ANDHRAPAP) Upcoming Dividend Will Be Larger Than Last Year's

Andhra Paper Limited (NSE:ANDHRAPAP) has announced that it will be increasing its dividend from last year's comparable payment on the 10th of September to ₹12.50. This will take the dividend yield to an attractive 3.0%, providing a nice boost to shareholder returns.

Check out our latest analysis for Andhra Paper

Andhra Paper's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Andhra Paper's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share could rise by 44.5% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 6.6%, which is in the range that makes us comfortable with the sustainability of the dividend.

Andhra Paper Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The annual payment during the last 2 years was ₹5.00 in 2021, and the most recent fiscal year payment was ₹12.50. This implies that the company grew its distributions at a yearly rate of about 58% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Andhra Paper has grown earnings per share at 44% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Andhra Paper's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. Taking the debate a bit further, we've identified 1 warning sign for Andhra Paper that investors need to be conscious of moving forward. Is Andhra Paper not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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