Sree Rayalaseema Hi-Strength Hypo (NSE:SRHHYPOLTD) Has Announced That Its Dividend Will Be Reduced To ₹3.00

Sree Rayalaseema Hi-Strength Hypo Limited (NSE:SRHHYPOLTD) has announced that on 18th of October, it will be paying a dividend of₹3.00, which a reduction from last year's comparable dividend. This means that the dividend yield is 0.5%, which is a bit low when comparing to other companies in the industry.

Check out our latest analysis for Sree Rayalaseema Hi-Strength Hypo

Sree Rayalaseema Hi-Strength Hypo's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Sree Rayalaseema Hi-Strength Hypo was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share could rise by 27.1% 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 6.2%, which is in the range that makes us comfortable with the sustainability of the dividend.

Sree Rayalaseema Hi-Strength Hypo's Dividend Has Lacked Consistency

Sree Rayalaseema Hi-Strength Hypo has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was ₹1.50, compared to the most recent full-year payment of ₹3.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Sree Rayalaseema Hi-Strength Hypo has impressed us by growing EPS at 27% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Sree Rayalaseema Hi-Strength Hypo's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Sree Rayalaseema Hi-Strength Hypo has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. Taking the debate a bit further, we've identified 1 warning sign for Sree Rayalaseema Hi-Strength Hypo that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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