Kakatiya Cement Sugar and Industries (NSE:KAKATCEM) Will Pay A Dividend Of ₹3.00

Kakatiya Cement Sugar and Industries Limited's (NSE:KAKATCEM) investors are due to receive a payment of ₹3.00 per share on 7th of October. The dividend yield will be 1.5% based on this payment which is still above the industry average.

See our latest analysis for Kakatiya Cement Sugar and Industries

Kakatiya Cement Sugar and Industries' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Kakatiya Cement Sugar and Industries' 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.

Unless the company can turn things around, EPS could fall by 14.5% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 21%, which is definitely feasible to continue.

Kakatiya Cement Sugar and Industries Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was ₹2.70 in 2012, and the most recent fiscal year payment was ₹3.00. This means that it has been growing its distributions at 1.1% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Kakatiya Cement Sugar and Industries' EPS has declined at around 15% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Our Thoughts On Kakatiya Cement Sugar and Industries' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Kakatiya Cement Sugar and Industries (1 can'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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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.