Sree Rayalaseema Hi-Strength Hypo (NSE:SRHHYPOLTD) Is Paying Out A Larger Dividend Than Last Year

The board of Sree Rayalaseema Hi-Strength Hypo Limited (NSE:SRHHYPOLTD) has announced that it will be paying its dividend of ₹4.00 on the 21st of October, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 0.6%, which is below the industry average.

See our latest analysis for Sree Rayalaseema Hi-Strength Hypo

Sree Rayalaseema Hi-Strength Hypo's 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, Sree Rayalaseema Hi-Strength Hypo's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 29.6% 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 4.3%, which is in the range that makes us comfortable with the sustainability of the dividend.

Sree Rayalaseema Hi-Strength Hypo Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2015, the dividend has gone from ₹1.50 total annually to ₹4.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

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. Sree Rayalaseema Hi-Strength Hypo has impressed us by growing EPS at 30% per year over the past five years. 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.

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

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 Sree Rayalaseema Hi-Strength Hypo that investors need to be conscious of moving forward. Is Sree Rayalaseema Hi-Strength Hypo not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.