Sudarshan Chemical Industries' (NSE:SUDARSCHEM) Dividend Is Being Reduced To ₹5.00

Sudarshan Chemical Industries Limited (NSE:SUDARSCHEM) has announced that on 29th of August, it will be paying a dividend of₹5.00, which a reduction from last year's comparable dividend. The yield is still above the industry average at 1.1%.

Check out our latest analysis for Sudarshan Chemical Industries

Sudarshan Chemical Industries' Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Sudarshan Chemical Industries was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 87.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 14%, which is in the range that makes us comfortable with the sustainability of the dividend.

Sudarshan Chemical Industries Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from ₹1.25 total annually to ₹5.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Sudarshan Chemical Industries Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Sudarshan Chemical Industries has grown earnings per share at 7.2% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Sudarshan Chemical Industries that investors should know about before committing capital to this stock. Is Sudarshan Chemical Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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