Vidhi Specialty Food Ingredients (NSE:VIDHIING) Will Pay A Larger Dividend Than Last Year At ₹0.40

The board of Vidhi Specialty Food Ingredients Limited (NSE:VIDHIING) has announced that it will be paying its dividend of ₹0.40 on the 30th of October, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 0.2%.

View our latest analysis for Vidhi Specialty Food Ingredients

Vidhi Specialty Food Ingredients' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Vidhi Specialty Food Ingredients was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share could rise by 31.3% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 5.4% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹0.20 in 2012, and the most recent fiscal year payment was ₹0.80. This means that it has been growing its distributions at 15% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Vidhi Specialty Food Ingredients has impressed us by growing EPS at 31% 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.

Our Thoughts On Vidhi Specialty Food Ingredients' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Vidhi Specialty Food Ingredients is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Are management backing themselves to deliver performance? Check their shareholdings in Vidhi Specialty Food Ingredients in our latest insider ownership analysis. 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.