Ruchira Papers (NSE:RUCHIRA) Has Affirmed Its Dividend Of ₹5.00

Ruchira Papers Limited (NSE:RUCHIRA) has announced that it will pay a dividend of ₹5.00 per share on the 24th of October. This makes the dividend yield 3.5%, which will augment investor returns quite nicely.

See our latest analysis for Ruchira Papers

Ruchira Papers' 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, Ruchira Papers' dividend was only 30% of earnings, however it was paying out 115% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, EPS could fall by 1.6% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 42%, which is definitely feasible to continue.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ₹1.09 in 2014 to the most recent total annual payment of ₹5.00. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. 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.

Ruchira Papers May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Ruchira Papers' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Ruchira Papers' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Ruchira Papers' payments, as there could be some issues with sustaining them into the future. 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.

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. As an example, we've identified 3 warning signs for Ruchira Papers 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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