Shree Digvijay Cement's (NSE:SHREDIGCEM) Shareholders Will Receive A Smaller Dividend Than Last Year

Shree Digvijay Cement Company Ltd. (NSE:SHREDIGCEM) is reducing its dividend to ₹2.00 on the 27th of Junewhich is 20% less than last year. This means the annual payment is 5.3% of the current stock price, which is above the average for the industry.

View our latest analysis for Shree Digvijay Cement

Shree Digvijay Cement's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Shree Digvijay Cement was paying out quite a large proportion of both earnings and cash flow, with the dividend being 264% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, earnings per share could rise by 52.9% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 48%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Shree Digvijay Cement Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. Since 2020, the first annual payment was ₹1.50, compared to the most recent full-year payment of ₹4.00. This means that it has been growing its distributions at 63% per annum over that time. Shree Digvijay Cement has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Shree Digvijay Cement's Dividend Might Lack Growth

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see Shree Digvijay Cement has been growing its earnings per share at 53% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Shree Digvijay Cement hasn't been doing.

The Dividend Could Prove To Be Unreliable

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. Strong earnings growth means Shree Digvijay Cement has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Shree Digvijay Cement that investors should take into consideration. 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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