Andhra Sugars' (NSE:ANDHRSUGAR) Dividend Will Be Reduced To ₹2.00

The Andhra Sugars Limited (NSE:ANDHRSUGAR) has announced that on 25th of October, it will be paying a dividend of₹2.00, which a reduction from last year's comparable dividend. The yield is still above the industry average at 1.8%.

Check out our latest analysis for Andhra Sugars

Andhra Sugars' 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 Sugars' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

If the trend of the last few years continues, EPS will grow by 9.8% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 13% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹1.40 in 2013, and the most recent fiscal year payment was ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 3.6% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Andhra Sugars Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Andhra Sugars has seen EPS rising for the last five years, at 9.8% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Andhra Sugars' prospects of growing its dividend payments in the future.

We Really Like Andhra Sugars' Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Andhra Sugars has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Andhra Sugars that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.