Deccan Cements' (NSE:DECCANCE) Dividend Is Being Reduced To ₹3.00

Deccan Cements Limited's (NSE:DECCANCE) dividend is being reduced from last year's payment covering the same period to ₹3.00 on the 11th of October. Despite the cut, the dividend yield of 0.5% will still be comparable to other companies in the industry.

See our latest analysis for Deccan Cements

Deccan Cements' Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Deccan Cements' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, EPS could fall by 14.9% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 21%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹0.60 in 2014, and the most recent fiscal year payment was ₹3.00. This means that it has been growing its distributions at 17% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Potential Is Shaky

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. Over the past five years, it looks as though Deccan Cements' EPS has declined at around 15% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Deccan Cements' Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good 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. For example, we've identified 5 warning signs for Deccan Cements (2 shouldn't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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