Aries Agro (NSE:ARIES) Is Increasing Its Dividend To ₹1.00

Aries Agro Limited (NSE:ARIES) will increase its dividend from last year's comparable payment on the 20th of October to ₹1.00. Despite this raise, the dividend yield of 0.6% is only a modest boost to shareholder returns.

Check out our latest analysis for Aries Agro

Aries Agro's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Aries Agro's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 4.8% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 7.3%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ₹1.50 in 2013, and the most recent fiscal year payment was ₹1.00. The dividend has shrunk at around 4.0% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Aries Agro May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 4.8% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Aries Agro's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Aries Agro that investors need to be conscious of moving forward. Is Aries Agro not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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