Andhra Sugars (NSE:ANDHRSUGAR) Will Pay A Smaller Dividend Than Last Year

The Andhra Sugars Limited's (NSE:ANDHRSUGAR) dividend is being reduced from last year's payment covering the same period to ₹2.00 on the 25th of October. The dividend yield of 1.9% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Andhra Sugars

Andhra Sugars' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, Andhra Sugars' dividend was comfortably covered by both cash flow and earnings. 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 2.5% over the next 12 months. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ₹1.40 in 2013 to the most recent total annual payment of ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 3.6% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 2.5% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Andhra Sugars could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Andhra Sugars' Dividend

Overall, while it's not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. 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.

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