Ramco Industries' (NSE:RAMCOIND) Dividend Will Be Reduced To ₹0.75

Ramco Industries Limited (NSE:RAMCOIND) has announced that on 15th of September, it will be paying a dividend of₹0.75, which a reduction from last year's comparable dividend. This means that the annual payment is 0.3% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for Ramco Industries

Ramco Industries' Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, Ramco Industries' 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.

Unless the company can turn things around, EPS could fall by 10.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 7.5%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 ₹0.25 in 2014, and the most recent fiscal year payment was ₹0.75. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Ramco Industries' EPS has declined at around 10% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Ramco Industries has 2 warning signs (and 1 which is significant) we think you should know about. Is Ramco Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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