Sree Rayalaseema Hi-Strength Hypo's (NSE:SRHHYPOLTD) Shareholders Will Receive A Smaller Dividend Than Last Year

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 annual payment is 0.5% of the current stock price, which is lower than what the rest of the industry is paying.

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

Sree Rayalaseema Hi-Strength Hypo's Future Dividend Projections Appear Well Covered By Earnings

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. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 27.1% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 6.2% by next year, which is in a pretty sustainable range.

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

Even in its relatively short history, the company has reduced the dividend at least once. 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 means that it has been growing its distributions at 8.0% per annum 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. It's encouraging to see that Sree Rayalaseema Hi-Strength Hypo has been growing its earnings per share at 27% a 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

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Sree Rayalaseema Hi-Strength Hypo does. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Sree Rayalaseema Hi-Strength Hypo that you should be aware of before investing. 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.