Ramco Industries (NSE:RAMCOIND) Has Announced That Its Dividend Will Be Reduced To ₹0.75

Ramco Industries Limited's (NSE:RAMCOIND) dividend is being reduced from last year's payment covering the same period to ₹0.75 on the 15th of September. 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.

Check out our latest analysis for Ramco Industries

Ramco Industries' Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Ramco Industries was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 10.0% over the next 12 months if recent trends continue. 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 means that it has been growing its distributions at 12% 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.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Ramco Industries' EPS has declined at around 10% 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.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Ramco Industries is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Ramco Industries has 2 warning signs (and 1 which is concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.

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