Sahyadri Industries' (NSE:SAHYADRI) Dividend Is Being Reduced To ₹1.00

Sahyadri Industries Limited (NSE:SAHYADRI) is reducing its dividend from last year's comparable payment to ₹1.00 on the 8th of September. This means that the dividend yield is 0.3%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for Sahyadri Industries

Sahyadri Industries' Payment Has Solid Earnings Coverage

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, Sahyadri 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.

Looking forward, EPS could fall by 6.3% 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 4.9%, 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

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹0.50 in 2014, and the most recent fiscal year payment was ₹1.00. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Sahyadri Industries might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Sahyadri Industries has seen earnings per share falling at 6.3% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

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 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. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Sahyadri Industries that investors need to be conscious of moving forward. Is Sahyadri Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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