Arihant Superstructures (NSE:ARIHANTSUP) Is Increasing Its Dividend To ₹1.50

Arihant Superstructures Limited (NSE:ARIHANTSUP) will increase its dividend from last year's comparable payment on the 27th of October to ₹1.50. The payment will take the dividend yield to 0.4%, which is in line with the average for the industry.

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Arihant Superstructures' Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Arihant Superstructures was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 26.2% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 7.7% by next year, which is in a pretty sustainable range.

See our latest analysis for Arihant Superstructures

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ₹0.30 in 2015, and the most recent fiscal year payment was ₹1.50. This means that it has been growing its distributions at 17% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Arihant Superstructures has impressed us by growing EPS at 26% 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 Arihant Superstructures' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Arihant Superstructures' payments are rock solid. While Arihant Superstructures 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Arihant Superstructures has 2 warning signs (and 1 which is a bit concerning) we think you should know about. 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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