Southern Petrochemical Industries (NSE:SPIC) Will Pay A Larger Dividend Than Last Year At ₹1.50

Southern Petrochemical Industries Corporation Limited (NSE:SPIC) will increase its dividend from last year's comparable payment on the 25th of October to ₹1.50. This will take the dividend yield to an attractive 2.2%, providing a nice boost to shareholder returns.

Check out our latest analysis for Southern Petrochemical Industries

Southern Petrochemical Industries' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Southern Petrochemical Industries was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 43.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 7.6%, which is in the range that makes us comfortable with the sustainability of the dividend.

Southern Petrochemical Industries Doesn't Have A Long Payment History

It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Southern Petrochemical Industries has seen EPS rising for the last five years, at 44% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Southern Petrochemical Industries' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Southern Petrochemical Industries is a great stock to add to your portfolio if income is your focus.

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 example, we've picked out 1 warning sign for Southern Petrochemical Industries that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.