Sree Rayalaseema Hi-Strength Hypo's (NSE:SRHHYPOLTD) Dividend Will Be Increased To ₹3.50

Sree Rayalaseema Hi-Strength Hypo Limited (NSE:SRHHYPOLTD) has announced that it will be increasing its periodic dividend on the 20th of October to ₹3.50, which will be 17% higher than last year's comparable payment amount of ₹3.00. Despite this raise, the dividend yield of 0.4% is only a modest boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Sree Rayalaseema Hi-Strength Hypo's stock price has increased by 68% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Sree Rayalaseema Hi-Strength Hypo

Sree Rayalaseema Hi-Strength Hypo's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Sree Rayalaseema Hi-Strength Hypo was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 28.1% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 6.9% by next year, which is in a pretty sustainable range.

Sree Rayalaseema Hi-Strength Hypo Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 7 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 7 years was ₹1.50 in 2015, and the most recent fiscal year payment was ₹3.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

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 seen EPS rising for the last five years, at 28% per annum. 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

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Sree Rayalaseema Hi-Strength Hypo you should be aware of, and 1 of them is significant. 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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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.