Arihant Superstructures (NSE:ARIHANTSUP) Will Pay A Larger Dividend Than Last Year At ₹1.20

The board of Arihant Superstructures Limited (NSE:ARIHANTSUP) has announced that it will be paying its dividend of ₹1.20 on the 20th of October, an increased payment from last year's comparable dividend. This takes the annual payment to 0.4% of the current stock price, which is about average for the industry.

See our latest analysis for Arihant Superstructures

Arihant Superstructures' Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Arihant Superstructures is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS could expand by 36.8% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 8.2%, which is in the range that makes us comfortable with the sustainability of the dividend.

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. Since 2014, the annual payment back then was ₹0.20, compared to the most recent full-year payment of ₹1.20. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Arihant Superstructures has seen EPS rising for the last five years, at 37% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Arihant Superstructures' Dividend

Overall, we always like to see the dividend being raised, but we don't think Arihant Superstructures will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Arihant Superstructures you should be aware of, and 1 of them is concerning. Is Arihant Superstructures 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.